Debt Service Coverage Ratio Calculator
See your DSCR before and after the loan you are considering — this one prices the new payment for you.
Enter Your Numbers
The Loan You Are Considering
What Lenders Look For
Estimates are for illustration only. Every lender defines net operating income and qualifying debt service slightly differently.
What Your Number Actually Means
| DSCR | How a lender usually reads it |
|---|---|
| Below 1.00 | The business does not generate enough to cover the payments. Normally a decline, unless collateral, a guarantor or a documented turnaround carries the file. |
| 1.00 – 1.14 | Covered on paper with no room. Expect a smaller loan, a longer term, more collateral, or a request to pay something down first. |
| 1.15 – 1.24 | Workable for many asset-backed and real-estate deals, thin for general lending. Often approved at a reduced amount. |
| 1.25 and above | The common target for small business and SBA-backed lending. At this level the ratio stops being the obstacle. |
These are conventions rather than rules, and they move with the deal. A business with long-term contracts and predictable collections may be approved below the threshold, while a seasonal or concentrated one may be held above it.
How Lenders Actually Compute It
Net operating income is rebuilt, not copied off the tax return. Most lenders start at net income and add back interest, depreciation and amortization, then some owner compensation, one-off costs and non-cash items. That is why a business showing modest profit can still cover debt comfortably — and why your accountant's number and the lender's rarely match to the dollar. Ask which add-backs a lender allows before assuming a figure.
Existing debt is never optional in the calculation. Every obligation with a scheduled payment counts: term loans, equipment finance, the amortizing portion of what is drawn on a line, and often capital leases. Advances repaid daily or weekly count too, converted to an annual figure. Leaving one out is the most common reason an owner's own DSCR looks better than the lender's.
Term changes the ratio as much as the amount does. The same loan spread over ten years instead of five roughly halves its annual debt service, which can move a file from declined to approved without changing the amount borrowed. It also keeps the debt outstanding longer and costs more in total interest. Move the term above and watch both the ratio and the payment respond.
Annualizing hides a seasonal problem. DSCR is a twelve-month view, so a business that earns most of its income in one quarter can look adequate for the year and still miss payments in a slow month. Lenders who know an industry often test the ratio against a trough, not an average.
If you want the reasoning behind the ratio rather than the arithmetic, how to calculate whether borrowing for expansion is worth it works through a full decision. To size the request first, see how much funding you can qualify for. For the payment on its own, use the business loan calculator, or the SBA loan calculator for a 7(a) or 504 project.
DSCR Calculator FAQ
Divide net operating income by total annual debt service. Net operating income is the cash the business produces before debt payments, which lenders usually rebuild from net income by adding back interest, depreciation, amortization and some owner or one-off expenses. Total debt service is every principal-and-interest payment for the next twelve months, including the loan being applied for. A business with $420,000 of net operating income and $140,000 of annual payments has a DSCR of 3.0.
It means the business produces $1.25 of cash for every $1.00 of debt payments, so a quarter more than it strictly needs. That cushion is why 1.25 is the threshold many lenders write into credit policy: at exactly 1.00 the business can cover its payments only if nothing goes wrong, and something usually does. A 1.25 DSCR absorbs a fifth of the income disappearing before a payment is missed.
For most small business lending, 1.25 or better is the common target, and SBA-backed lenders frequently use the same figure. Some asset-backed and real-estate transactions are written at 1.15 to 1.20, and stronger or more cyclical credits can be held to 1.35 or more. Below 1.00 the business does not generate enough to cover the payments, which is normally a decline unless something outside the ratio makes up for it.
Yes. Enter your net operating income and what you already pay in annual debt service, then describe the loan you are considering by amount, rate and term. The calculator on this page amortizes that loan, adds its payments to your existing obligations, and shows the ratio both before and after, along with the largest new loan that would still clear a 1.25 DSCR.