Lenders typically require a DSCR of at least 1.20–1.25 for commercial real estate and business loans. A DSCR below 1 means the income doesn’t cover the loan payments.
How to use the DSCR Calculator – Debt Service Coverage Ratio
- Net operating income (annual)
- Debt service
- Annual debt service
- Total loan
- Interest rate
- Term
Results update as you type, and every field accepts the units shown in its menu.
How it works
Enter the annual net operating income and either the annual debt service or the loan details.
Tips
- Check whether rates are quoted annually, semi-annually or per period.
- Bond prices and yields move in opposite directions – a higher yield means a lower price.
- Use the bond’s clean price (without accrued interest) for yield calculations.
- Credit ratios are most useful when tracked over several years.
Common mistakes to avoid
- Confusing the coupon rate with the yield.
- Using the face value instead of the market price.
- Forgetting that callable bonds may be redeemed before maturity.
Inputs explained
| Field | What to enter |
|---|---|
| Net operating income (annual) | Amount in your currency |
| Debt service | Choose one: Enter annual debt service, Calculate from the loan |
| Annual debt service | Amount in your currency |
| Total loan | Amount in your currency |
| Interest rate | In % |
| Term | Units: years, months |
What each result means
- Annual debt service = [Monthly loan payment]×12
- Debt service coverage ratio = [Net operating income (annual)]÷[Annual debt service]
- Maximum annual debt service at 1.25× = [Net operating income (annual)]÷1.25
Example values
How the main result changes when Net operating income changes and everything else stays at the example values above:
| Net operating income (annual) | Debt service coverage ratio |
|---|---|
| 90,000 | 0.59 |
| 135,000 | 0.88 |
| 180,000 | 1.18 |
| 225,000 | 1.47 |
| 270,000 | 1.77 |
| 360,000 | 2.36 |
Formula
DSCR = net operating income ÷ annual debt serviceAnnual debt service = 12 × monthly loan paymentMonthly payment = P × i ÷ (1 − (1 + i)^−n)Worked example
Inputs — Net operating income (annual): $180,000; Debt service: Calculate from the loan; Annual debt service: $140,000; Total loan: $1,800,000; Interest rate: 7 %; Term: 25 years.
Results — Monthly loan payment = $12,722.03; Annual debt service = $152,664.31; Debt service coverage ratio = 1.18; Lender view = Below most lenders' minimum; Maximum annual debt service at 1.25× = $144,000.00.
Frequently asked questions
What is a good DSCR?
1.25 or higher for most commercial lenders.
What does a DSCR of 1 mean?
Income exactly covers the debt payments – no margin for error.
How can I improve DSCR?
Raise income, cut operating costs, or borrow less or for longer.
What formula does the DSCR Calculator – Debt Service Coverage Ratio use?
DSCR = net operating income ÷ annual debt service.