Glossary
What is Debt Service Coverage Ratio (DSCR)?
The debt service coverage ratio measures whether a business generates enough cash to cover its debt payments. It is calculated by dividing cash available for debt service, often net operating income or a similar cash flow figure, by total annual principal and interest payments. A ratio above 1.0 means the business earns more than it needs to pay its debts. Lenders, especially banks and SBA lenders, commonly set a minimum DSCR, and the target varies by lender.
Example
A business with $150,000 in available cash flow and $100,000 in annual debt payments has a DSCR of 1.5.
Related funding
SBA Loans: Government-backed loans with long terms for growth, real estate and acquisitions.
Related terms
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