Commercial Real Estate Loan Calculator
Computes the Debt Service Coverage Ratio (DSCR) for a commercial real estate loan, showing lenders and investors whether a property's income adequately covers its debt payments. Use it when underwriting or applying for a commercial mortgage.
About this calculator
The Debt Service Coverage Ratio (DSCR) is the key metric lenders use to assess commercial loan viability. It is calculated as: DSCR = Net Operating Income (NOI) / Annual Debt Service. Annual Debt Service is the total of 12 monthly mortgage payments, where each payment is computed using the amortization formula: M = L × [r(1+r)ⁿ] / [(1+r)ⁿ − 1], with L as loan amount, r as monthly interest rate, and n as amortization term in months. A DSCR above 1.0 means the property generates more income than its debt obligations. Most commercial lenders require a minimum DSCR of 1.20–1.25, meaning NOI must be at least 20–25% greater than annual debt service. A DSCR below 1.0 signals negative coverage — the property cannot service its own debt.
How to use
A property has a $1,000,000 loan at 6.5% interest, amortized over 25 years, with an annual NOI of $90,000. Monthly rate = 6.5%/12 = 0.5417%. n = 300 payments. Monthly payment = $1,000,000 × (0.005417 × 1.005417³⁰⁰) / (1.005417³⁰⁰ − 1) ≈ $6,752. Annual debt service = $6,752 × 12 = $81,024. DSCR = $90,000 / $81,024 ≈ 1.11. This falls below the typical 1.25 lender requirement — the borrower may need to increase the down payment or find a property with higher NOI to qualify.
Frequently asked questions
What DSCR do commercial lenders typically require for loan approval?
Most commercial lenders require a minimum DSCR of 1.20 to 1.25 for standard investment properties. This means the property must generate at least 20–25% more net operating income than its annual debt payments. Properties in riskier categories — such as hotels, restaurants, or single-tenant buildings — may face a higher requirement of 1.35–1.50. SBA loans often require a global DSCR (including the borrower's personal income and debts) of at least 1.25. Falling below the required DSCR typically means reducing the loan amount or increasing the down payment.
How is net operating income calculated for a commercial property?
Net Operating Income (NOI) equals gross potential rental income minus vacancy and credit loss, plus other income (parking, laundry, etc.), minus all operating expenses. Operating expenses include property taxes, insurance, maintenance, management fees, and utilities paid by the owner — but critically, they exclude mortgage payments and depreciation. NOI is a pre-debt, pre-tax measure of a property's operational earning power. Lenders typically use a stabilized NOI based on market rents and historical occupancy rather than the current year's actual figures, which can fluctuate.
What is the difference between amortization period and loan term in commercial real estate?
In commercial real estate, the amortization period and the loan term are often different, unlike most residential mortgages. The amortization period (e.g., 25–30 years) determines the monthly payment calculation, spreading principal repayment over a long horizon. The loan term (e.g., 5–10 years) is when the full remaining balance becomes due as a balloon payment. This means a borrower makes relatively low monthly payments based on a 25-year amortization but must refinance or pay off the balloon balance at the end of the 5-year or 10-year term. This structure is standard in commercial lending.