What is debt service coverage ratio (DSCR)?
Debt service coverage ratio (DSCR) measures whether your business earns enough to cover its debt payments: divide your annual net operating income by your total annual debt payments. A DSCR of 1.0 means you earn exactly what you owe; most lenders want comfortably more than that, commonly around 1.25 or higher, before approving new debt. If you're applying for a term loan, an SBA loan, or commercial real estate financing, DSCR is often the single number that decides your file. Understanding it before you apply is the difference between a targeted approval and a confusing denial.
Last updated · Reviewed by Cody Dreis
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How DSCR is calculated and what lenders want
The formula: DSCR = net operating income ÷ total annual debt service (all loan principal and interest payments). Example: a business generating $150K in annual net operating income with $100K in annual debt payments has a DSCR of 1.50, for every dollar owed, it earns $1.50. That's a strong file. The same business carrying $140K in payments sits at 1.07, which most lenders read as too tight to absorb a slow quarter.
Three things to know: lenders calculate DSCR *including* the new loan you're requesting, not just existing debt, so a healthy ratio today can fail with the proposed payment added. Different lenders define "income" differently (some use EBITDA, some add back owner salary), so the same business can score differently across lenders. And requirements vary by product: bank and SBA deals scrutinize DSCR hardest, while revenue-based lenders weight raw monthly deposits more heavily.
If your DSCR is thin, you can improve it by requesting a smaller amount, extending the term to lower the payment, or paying down existing debt first.
Funding options by DSCR strength
Business term loans: $10K-$500K+ over 1-5 years. Best when your DSCR is solid and you want fixed, predictable payments.
SBA loans: 7(a) up to $5M, 504 up to $5.5M for fixed assets. Longer terms shrink annual debt service, which helps borderline DSCRs qualify. Best for larger, cheaper capital if you can wait for the process.
Commercial real estate financing: $100K-$10M+, where DSCR on the property's income is central. Best for owner-occupied purchases or income property.
Working capital loans: $5K-$500K underwritten more on deposits than DSCR. Best when your ratio is tight but revenue is strong.
How Quordx Capital Works
Rather than you reverse-engineering each lender's DSCR math, Quordx Capital's matching process does the fit analysis for you: a 5-minute application and your documents (bank statements, tax returns, P&L for larger deals) get compared against 50+ lenders, and you see the 3-7 most likely to approve your actual ratio. Decisions usually arrive within 24-48 hours and funding within 3-7 business days.
What to Expect
If your DSCR can't support the amount you want, Quordx Capital will say so plainly and show what amount or structure *does* work, not push you into a payment that strains you. Every term and fee is disclosed up front, the service is free to borrowers, and checking your matches carries no obligation.
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Written by
Cody Dreis
Founder, Quordx Capital
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Quordx Capital is a business funding broker, not a lender. We facilitate introductions between U.S. small and medium-sized businesses and lenders or capital providers in our network. All credit decisions, funding amounts, rates, fees, repayment terms, and timelines are determined solely by individual lenders based on their own underwriting criteria.
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