📊 How DSCR (Debt-Service Coverage Ratio) Affects Loan Approval

Debt-Service Coverage Ratio (DSCR) is one of the key metrics lenders use to evaluate your ability to repay a commercial real estate loan.

Formula:

DSCR = Net Operating Income (NOI) / Annual Debt Payments

What It Means:

• A DSCR of 1.0 means you earn just enough to cover your debt.

• A DSCR above 1.25 is generally required for approval.

• A DSCR below 1.0 is a red flag—you don’t have enough income to cover loan payments.

How to Improve Your DSCR:

• Increase rental income (raise rents or increase occupancy)

• Reduce expenses like maintenance or utilities

• Choose longer loan tenures to reduce annual payment burden

Lenders may also adjust your DSCR based on market risks and location of the property.