Definition
The debt service coverage ratio, or DSCR, compares the money a business generates with the loan repayments it must make. If earnings available for debt are twice the repayments, the ratio is 2 times. Lenders use DSCR, or similar measures, to judge whether a business can afford new borrowing. Each lender sets its own minimum, and a higher ratio means more breathing room.
DSCR is one of the most direct ways a lender answers the question: can this business afford the loan?
How it works
Take the business’s earnings available to pay debt over a period and divide by the loan repayments due over the same period. A result of 1.5 means earnings are one and a half times the repayments; below 1 means earnings would not cover them.
How lenders use it
Lenders may calculate DSCR from financial statements or estimate it from bank statements, and may include it as a covenant in larger loans. Each sets its own threshold and definition.
Check yours
The repayment coverage calculator gives a quick estimate using your own numbers. If your coverage is tight, a longer term, smaller amount or consolidation may help. To discuss what your business can comfortably carry, make one enquiry.
Common questions
How do I calculate DSCR?
Divide the business's earnings available for debt, often profit before interest, tax, depreciation and loan repayments, by total loan repayments for the same period.
What DSCR do lenders want?
It varies by lender and product. Coverage comfortably above one is generally needed; the repayment coverage calculator helps you check.
Sources and further reading
Related terms