Debt Service Coverage Ratio Calculator
Computes the Debt Service Coverage Ratio (DSCR) to show whether a commercial property's income can cover its loan payments. Lenders use this ratio to approve or deny commercial mortgage applications.
About this calculator
The Debt Service Coverage Ratio (DSCR) is defined as: DSCR = Net Operating Income / Annual Debt Service. Annual Debt Service is the total of all principal and interest payments due in a year, calculated using the standard amortizing mortgage formula: Monthly Payment = P × [r(1+r)ⁿ] / [(1+r)ⁿ − 1], where P is loan principal, r is the monthly interest rate (annual rate ÷ 12), and n is the total number of monthly payments (years × 12). Annual Debt Service equals that monthly payment multiplied by 12. A DSCR above 1.0 means income exceeds debt obligations; below 1.0 means the property cannot cover its own loan. Most commercial lenders require a minimum DSCR of 1.20 to 1.25, providing a cushion against income fluctuations.
How to use
Assume NOI = $120,000, loan amount = $1,000,000, interest rate = 6%, and loan term = 25 years. Step 1: Monthly rate r = 0.06/12 = 0.005. Step 2: n = 25 × 12 = 300 payments. Step 3: Monthly payment = $1,000,000 × [0.005 × (1.005)³⁰⁰] / [(1.005)³⁰⁰ − 1] ≈ $6,443. Step 4: Annual debt service = $6,443 × 12 = $77,316. Step 5: DSCR = $120,000 / $77,316 ≈ 1.55. Enter your figures and the calculator performs these steps instantly.
Frequently asked questions
What DSCR do most commercial lenders require for loan approval?
Most conventional commercial lenders require a minimum DSCR of 1.20, meaning the property earns 20% more than its debt obligations. SBA loans often require 1.25, and some conservative lenders push to 1.35 for riskier asset classes like hospitality. A higher DSCR gives lenders confidence that temporary income drops won't cause default. Borrowers with DSCR below the threshold may need a larger down payment, a shorter amortization, or a co-borrower to qualify.
How does interest rate changes affect the debt service coverage ratio?
Rising interest rates increase the monthly debt service payment, which directly reduces DSCR even if NOI stays the same. For example, raising a rate from 5% to 7% on a $1M, 25-year loan increases the annual debt service by roughly $13,000, which can push a borderline DSCR below the lender's threshold. Borrowers should stress-test their DSCR at rates 1–2% above their quoted rate to ensure the investment remains viable. This is especially important with variable-rate or bridge loans that reset periodically.
What is the difference between DSCR and loan-to-value ratio in commercial lending?
DSCR measures income coverage — can the property pay its own debt? — while Loan-to-Value (LTV) measures collateral coverage — is the loan smaller than the property's worth? Lenders use both simultaneously: a property might have a safe LTV of 65% but a weak DSCR of 1.05, making it a risky loan. DSCR is a cash-flow underwriting metric, whereas LTV is a collateral underwriting metric. Strong deals satisfy both requirements, and weakness in either can be a deal-breaker regardless of how strong the other looks.