What Is a Good DSCR for a Business Loan?

What Is DSCR?

Your Debt Service Coverage Ratio (DSCR) measures your business's ability to cover its debt payments from its operating income. It's one of the most important metrics a lender will evaluate.

The formula is simple:

DSCR = Net Operating Income / Total Debt Service

What's a Good DSCR?

Most lenders look for a DSCR of 1.25 or higher. Here's how they interpret different ratios:

• 1.25+: Strong — your business generates enough cash to comfortably cover debt payments
• 1.0–1.24: Adequate — you can cover payments but have little cushion
• Below 1.0: Insufficient — your business doesn't generate enough to cover current debt

How to Improve Your DSCR

1. Increase revenue — Grow your top line through new customers or higher prices
2. Reduce expenses — Cut unnecessary costs to boost net operating income
3. Pay down existing debt — Lower your monthly debt service
4. Refinance — Extend terms to reduce monthly payments

Why It Matters

Lenders use DSCR to assess risk. A higher ratio means you have more cushion to absorb downturns, making you a safer bet. If your DSCR is below 1.25, most conventional lenders will decline your application.

Use our free DSCR Calculator to check yours today.