The Debt Service Coverage Ratio (DSCR) is a financial metric lenders use to determine your business’s ability to pay back debt. It compares your net operating income (NOI) to your total debt payments (principal + interest).
DSCR formula:
A DSCR of 1 means your income just covers your debt.
Greater than 1 means you have a cushion.
Less than 1 is a warning sign lenders may reject your application.
Lenders want to be sure your business generates enough cash flow to repay debt without jeopardizing operations. A strong DSCR means less risk and often results in:
Lower interest rates
Larger loan amounts
Longer repayment terms
To calculate your DSCR, you need:
Net Operating Income (revenue minus operating expenses)
Annual debt payments (principal + interest)
Example:
If your NOI is $150,000 and annual debt payments total $120,000:
This 1.25 ratio is typically considered a minimum for most lenders.
Improving DSCR can boost loan approval chances and secure better terms:
Increase revenue by growing sales or diversifying income
Reduce operating expenses without sacrificing quality
Refinance existing debt to reduce payments
Delay new debt until cash flow strengthens
Term Loans: DSCR is critical; lenders often require 1.25 or higher
SBA Loans: Minimum DSCR varies; sometimes as low as 1.15
Asset-Based Loans: DSCR may be less critical if assets sufficiently collateralize the loan
Revenue-Based Financing: DSCR is less important as payments fluctuate with revenue
We analyze your financials to:
Calculate and interpret your DSCR
Identify opportunities to improve your ratio
Match you with lenders aligned with your DSCR profile
Structure deals that leverage strengths and minimize weaknesses
Understanding DSCR empowers you to negotiate better loan terms and confidently pursue capital for growth.
📩 Contact Sterlas Capital at info@sterlasvan.com to schedule a DSCR-focused funding consultation.
Let’s position your business for financial success.