Debt Service Coverage Ratio (DSCR) Calculator for Commercial Lenders

This is a free DSCR calculator and short guide. It is for credit analysts at non-bank lenders and credit funds. That means private credit, direct lending, venture debt and equipment finance.

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Free DSCR calculator

Enter EBITDA or net operating income. Add your adjustments. Then enter yearly principal and interest. You can also add guarantors or related companies to get a global DSCR. The calculator shows the ratio. It also shows a short note on how the ratio compares with levels lenders often use.

What is the debt service coverage ratio?

DSCR shows how many times cash flow covers debt payments. The period is usually one year. At 1.0x, cash flow pays the principal and interest exactly. Below 1.0x, the borrower needs other cash to pay. Above 1.0x, there is room to spare.

DSCR formula

DSCR = cash flow for debt payments / total debt payments

• Cash flow for debt payments: usually EBITDA for operating companies. For property loans it is usually net operating income. Both are after adjustments.
• Total debt payments: principal plus interest on all the debt you count, for the same period.

Global DSCR adds in guarantors or related companies. You divide their total cash flow by their total debt payments.

Worked example (invented numbers)

These numbers are made up. They do not describe a real borrower.

A made-up equipment rental company reports:

• EBITDA: 1,200,000
• Add back a one-time legal cost: +100,000
• Take off maintenance capex not paid with debt: -150,000
• Take off cash taxes: -50,000
• Adjusted cash flow: 1,100,000

Yearly payments on old and new loans:

• Principal: 600,000
• Interest: 280,000
• Total: 880,000

DSCR = 1,100,000 / 880,000 = 1.25x

Common adjustments and mistakes in commercial lending

• Add-backs that come back. A "one-time" cost that shows up every year is not one-time. Ask for the history.
• Owner pay. Set salaries and payouts to what the business would really pay.
• Maintenance capex. EBITDA leaves it out. If the business must replace equipment to keep earning, take it off.
• Taxes and payouts. Cash that leaves the business cannot pay debt.
• Different periods. Use the same twelve months for cash flow and payments. Past cash flow against future payments can give the wrong picture.
• Interest-only months. Cover can look strong while only interest is due. It can drop when principal payments start. Test the full payment schedule.
• Missing debt. Count leases, seller notes, credit lines and the payments on the new loan.
• Definitions. The covenant DSCR follows the credit agreement. Work it out the way the agreement says.

DSCR vs FCCR

FCCR means fixed charge coverage ratio. It is a wider test. It usually starts from EBITDA. It takes off capex not paid with debt, cash taxes and payouts. Then it divides by fixed charges. Fixed charges can include rent and lease payments, plus principal and interest. DSCR looks at debt payments only. Many credit agreements use FCCR as the covenant and DSCR as an internal check. Some do the reverse.

Not covered here: DSCR loans for rental property

This page is about DSCR as a credit test for business borrowers. It does not cover "DSCR loans" for people who invest in rental homes.

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