Explanation
A DSCR of 1.0 means income exactly covers debt. SBA lenders generally require 1.15–1.25; conventional bank lenders often want 1.25 or higher.
DSCR is calculated from tax returns or financial statements and is one of the most important underwriting metrics for commercial real estate and business term loans.
Examples
- •Net operating income $120,000 ÷ debt service $100,000 = 1.20 DSCR
- •Below 1.0 typically results in denial
- •1.25+ is the comfort zone for most banks
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