What this calculator does
The debt service coverage ratio asks one question: does the income cover the loan payments, and by how much. A ratio of 1.00 means the two exactly match, with nothing left for a vacancy, a repair or a rate rise.
Lenders almost always want more than that. Most commercial property lenders look for at least 1.25, which on $8,000 of monthly net operating income means debt service of no more than $6,400.
The formula
Divide net operating income by total debt service over the same period. Both figures should cover the same interval, whether monthly or annual.
| Term | Meaning |
|---|---|
| Debt service | Total loan payments, principal and interest, over the period. |
| Net operating income | Income after operating expenses but before loan payments. |
| Coverage | How many times the income covers the payments. Above 1 means a surplus. |
The inputs explained
| Field | What to enter |
|---|---|
| Net operating income (monthly) ($) | Monthly net operating income, after operating expenses but before loan payments. |
| Total debt service (monthly) ($) | Total monthly loan payments, including both principal and interest. |
When to use it
Preparing a commercial loan application
Lenders set a minimum ratio, and knowing yours in advance shapes how much can be borrowed.
Stress-testing a property
Recalculating at a higher interest rate shows how much headroom actually exists.
Sizing a loan
Working backwards from the lender's minimum ratio gives the maximum affordable payment.
Worked examples
Every figure in the tables below is produced by this page’s own calculator at build time, so the numbers and the tool always agree. Select any row to load that scenario.
How much debt can $8,000 of income support?
The same income against four levels of debt service.
| Monthly debt service | DSCR | Surplus cash flow after debt service |
|---|---|---|
| $5,000 | 1.60 | $3,000.00 |
| $6,000 | 1.33 | $2,000.00 |
| $8,000 | 1.00 | $0.00 |
| $10,000 | 0.80 | −$2,000.00 |
Questions
What DSCR do lenders require?
Commercial property lenders commonly want 1.20 to 1.25 as a minimum, and more for riskier property types or less experienced borrowers. Requirements tighten when credit conditions do.
What does a ratio below 1 mean?
That the property does not generate enough income to cover its own loan payments, and the shortfall has to be funded from elsewhere. Lenders will generally not write a loan on that basis.
Should the ratio use monthly or annual figures?
Either, as long as both sides match. Annual is the convention in commercial lending; monthly is often easier when working from a rent roll.
Why not just look at the surplus?
The surplus tells you the dollar cushion; the ratio tells you the proportional one. A $2,000 surplus means something very different on $10,000 of income than on $100,000, which is what the ratio captures.
For the income figure that feeds it, see the cap rate calculator. For the loan payment being covered, see the loan payment calculator.