# DSCR Source: https://businessloanbroker.ai/glossary/dscr/ Site: BusinessLoanBroker.ai (powered by Levr) > DSCR is your net operating income divided by your annual debt payments. Most lenders want 1.25 or higher. See the worked example and how to improve yours. Debt service coverage ratio, or DSCR, is your business's net operating income divided by its total annual debt payments. It is the main cash flow test lenders use to decide whether you can afford a loan, and most banks want to see 1.25 or higher. ## Key facts - **Also called:** Debt coverage ratio, DCR, coverage - **Where you will see it:** Term loans, SBA loans, commercial real estate loans, equipment financing, bank lines of credit - **Why it matters:** Below about 1.25 most banks decline, whatever your credit score ## What is DSCR? DSCR measures how many times over your cash flow covers your loan payments. A DSCR of 1.0 means you earn exactly enough to make the payments with nothing to spare. A DSCR of 1.5 means you earn one and a half times what you owe each year. Lenders calculate it from your tax returns or financial statements and include the new loan you are asking for, which is why a profitable business can still be declined: the new payment pushes the ratio under the floor. Our [DSCR guide](https://businessloanbroker.ai/guides/dscr-explained/) covers how lenders adjust your income before they divide. ## How is DSCR calculated? Divide net operating income by total annual debt service. Net operating income is usually your profit before interest, taxes, depreciation and amortization, sometimes with owner salary added back. - Your business earns $150,000 in net operating income. - You already pay $60,000 a year on an existing loan. - You are applying for a loan with a $4,000 monthly payment, which is $48,000 a year. - Total debt service is $108,000. DSCR is $150,000 divided by $108,000, which is 1.39. At 1.39 most lenders would approve on cash flow. At a $7,500 monthly payment, debt service would be $150,000 and DSCR would be 1.0, a decline almost everywhere. Try your numbers in our [DSCR calculator](https://businessloanbroker.ai/tools/dscr-calculator/). ## What do lenders consider normal? Most banks and SBA lenders want a DSCR of 1.25 or higher. Commercial real estate lenders often want 1.20 to 1.35 depending on the property. Equipment lenders are sometimes comfortable at 1.15 because the equipment itself is [collateral](https://businessloanbroker.ai/glossary/collateral/). Online lenders typically do not quote a DSCR. They read bank deposits and daily balances instead, which is why they approve businesses banks decline, at a higher price. A DSCR under 1.0 means the loan would be paid from savings or new borrowing, a warning sign for you as much as the lender. ## What should you watch for? Watch how the lender defines income. Some use last year's tax return only, which hurts a business that grew this year. Some strip out one time gains or owner distributions. Ask what number they used, because a different add back can move DSCR from 1.1 to 1.3. Also watch for a DSCR covenant. Many bank and commercial real estate loans require you to stay above a set DSCR every year, and dipping below it can put the loan in default even if you never missed a payment. Our guide on [reading a term sheet](https://businessloanbroker.ai/guides/how-to-read-a-term-sheet/) covers covenants. ## Related terms DSCR is the core cash flow test in [underwriting](https://businessloanbroker.ai/glossary/underwriting/), weighed alongside [collateral](https://businessloanbroker.ai/glossary/collateral/) and [working capital](https://businessloanbroker.ai/glossary/working-capital/), and the loan's [amortization](https://businessloanbroker.ai/glossary/amortization/) sets the payment in the denominator. You will see it most on [SBA loans](https://businessloanbroker.ai/business-loans/sba-loans/) and [commercial real estate loans](https://businessloanbroker.ai/business-loans/commercial-real-estate-loans/). You can apply here, or ask your AI assistant to calculate your DSCR and apply for you through our [MCP server](https://businessloanbroker.ai/agents/). ## Questions and answers **What DSCR do I need for an SBA loan?** Most SBA lenders want 1.25 or higher on the combined business and new loan. Some will go to 1.15 with strong collateral or a cash injection. Under 1.0 is a decline almost everywhere. **How can I improve my DSCR?** Raise net operating income, lower existing debt payments, or ask for a longer term so the new annual payment is smaller. Refinancing a short term loan into a longer one often lifts DSCR enough to qualify. **Does DSCR use my personal income?** Usually not for the business ratio. Some lenders run a separate global DSCR that adds your personal income and debt, especially on SBA and real estate loans where you sign a personal guarantee. ## Related - [DSCR explained: the cash flow test lenders use](https://businessloanbroker.ai/guides/dscr-explained/) - [DSCR calculator](https://businessloanbroker.ai/tools/dscr-calculator/) - [Underwriting](https://businessloanbroker.ai/glossary/underwriting/) - [SBA 7(a) loans](https://businessloanbroker.ai/business-loans/sba-7a-loans/) ## Apply Apply for the business: https://apply.businessloanbroker.ai/signup?utm_source=direct&utm_medium=organic&utm_content=md-dscr MCP server for AI agents: https://mcp.businessloanbroker.ai/mcp (docs: https://businessloanbroker.ai/agents/mcp/)