What DSCR measures
The debt service coverage ratio compares the cash your business generates with the loan payments it has to make. Lenders use it to answer one question: can this business comfortably pay us back?
DSCR = cash available for debt service ÷ annual debt payments. A DSCR of 1.00 means every dollar of cash goes to loan payments, with nothing left over. A DSCR of 1.40 means you generate $1.40 for every $1.00 of payments.
How the calculator finds “cash available”
It starts with net income and adds back interest and depreciation, because interest is part of the payment being tested and depreciation is a non-cash expense. Lenders often call this EBITDA (earnings before interest, taxes, depreciation and amortization), though each one has its own rules for which add-backs it accepts.
What lenders typically look for
- Below 1.00: the business doesn’t generate enough cash to cover its payments. Most lenders will decline.
- 1.00 to 1.24: payments are covered, but with little cushion. Approval is harder and may need extra collateral or a guarantor.
- 1.25 and up: a common minimum for bank and equipment loans.
- 1.50 and up: generally considered strong.
Requirements vary by lender and loan program. Many also run a “global” DSCR that includes the owner’s personal income and debts, so treat this as a starting point.
Before you apply for a loan
A lender reads your DSCR from your financial statements and tax returns, so the result is only as good as your books. Common problems we see:
- Equipment purchases expensed instead of recorded as assets, which understates profit.
- Loan payments booked entirely as expense, with no split between principal and interest.
- Personal expenses mixed into the business, hiding profit you could have added back.
- Year-end statements that arrive months late, or not at all.
Clean, current books make the conversation with your banker much easier. If a truck, equipment or a line of credit is in your plans, we can help you get loan-ready with cleanup and CFO guidance.
Common questions
What is a good DSCR for a small business loan?
1.25 is a common benchmark for bank and equipment loans, and 1.50 or higher is generally considered strong. Some loan programs accept a little lower. Ask your lender which ratio and calculation method they use.
What is the difference between DSCR and EBITDA?
EBITDA is a dollar amount: earnings before interest, taxes, depreciation and amortization. DSCR is a ratio that divides cash available for debt service (often based on EBITDA) by your annual loan payments.
How can I improve my DSCR?
Increase profit (better pricing, job margins and overhead control), lower annual payments (longer terms or refinancing), or pay down existing debt. Accurate books can also help, because misclassified expenses often understate real profit.
This calculator gives estimates for general planning. It isn’t tax, legal, lending or accounting advice for your specific situation, and lenders may calculate figures differently.