Debt Service Coverage Ratio Calculator
| DSCR Range | Interpretation | Your DSCR | Status |
|---|---|---|---|
| Below 1.0 | Negative cash flow | - | - |
| 1.0 - 1.2 | Minimally acceptable | - | - |
| 1.2 - 1.5 | Good coverage | - | - |
| Above 1.5 | Strong coverage | - | - |
The Debt Service Coverage Ratio (DSCR) measures a company's ability to use its operating income to repay all its debt obligations, including repayment of principal and interest on both short-term and long-term debt.
• Lower risk of default
• Better loan terms
• Greater financial stability
• More attractive to lenders
• Higher risk of default
• Difficulty obtaining financing
• Higher interest rates
• Potential cash flow problems
| Date | Net Operating Income | Total Debt Service | DSCR | Assessment | Currency | Actions |
|---|
📊 Complete Guide to DSCR Calculator
Learn how to measure your business's ability to repay debts with our simple, powerful calculator. No financial degree required!
Imagine you're a business owner trying to get a loan. The bank asks, "Can your business afford the monthly payments?" The answer lies in your Debt Service Coverage Ratio (DSCR) - a simple number that tells lenders (and you!) if your business makes enough money to cover its debt.
In this guide, we'll break down the DSCR calculator into simple, easy-to-understand pieces. You'll learn what each field means, how to use real examples, and get answers to common questions.
🎯 Simple Analogy: The Pizza Party Test
Think of DSCR like planning a pizza party:
- Net Operating Income (NOI) = How much money you have for pizza
- Total Debt Service = How much pizza everyone promised they'd eat
- DSCR = Comparison of pizza available vs. pizza promised
- If DSCR is 1.5 = You have 50% more pizza than people promised to eat (safe!)
- If DSCR is 0.8 = You have 20% less pizza than people want (problem!)
What Does DSCR Actually Mean?
DSCR tells you if your business makes enough money to pay all its debts. Here's what the numbers mean:
🚨 DSCR Below 1.0
"We're in trouble!"
Example: DSCR = 0.8
Your business makes $80,000 but owes $100,000 in debt payments. You're short $20,000 each year.
⚠️ DSCR 1.0-1.2
"We can just barely make it"
Example: DSCR = 1.1
You make $110,000 and owe $100,000. You have $10,000 extra for unexpected expenses.
✅ DSCR 1.2-1.5
"We're doing well"
Example: DSCR = 1.35
You make $135,000 and owe $100,000. You have $35,000 cushion for growth or emergencies.
🏆 DSCR Above 1.5
"We're crushing it!"
Example: DSCR = 2.0
You make $200,000 and owe $100,000. Lenders love this - you could handle double the debt!
The Magic Formula: How DSCR is Calculated
The DSCR Formula
That's it! Just divide your business income by your debt payments.
💰 How It Works in 3 Steps
1 → Calculate your business income → 2 → Add up all debt payments → 3 → Divide income by debt
Understanding Each Field in the Calculator
1. Net Operating Income (NOI) - Your Business's "Take-Home Pay"
What it is: The money your business makes from its main operations, minus operating expenses (but before taxes and debt payments).
📝 Simple Example:
Your coffee shop makes $300,000 from coffee sales. You spend:
- Coffee beans: $80,000
- Employee salaries: $100,000
- Rent and utilities: $40,000
Your NOI = $300,000 - ($80,000 + $100,000 + $40,000) = $80,000
2. Total Debt Service - Your "Monthly Bills"
What it is: All the money you need to pay for loans, including both interest and principal.
📝 Simple Example:
Your coffee shop has:
- Business loan: $2,000/month
- Equipment loan: $1,500/month
- Credit card: $500/month
Total Debt Service = $2,000 + $1,500 + $500 = $4,000/month × 12 = $48,000/year
💡 Quick Tip:
Don't forget to multiply monthly payments by 12 to get the yearly amount! The calculator does this automatically for you.
3. Interest Expense - The "Cost of Borrowing"
What it is: Just the interest portion of your loan payments.
📝 Simple Example:
Your $100,000 loan at 5% interest:
- Total payment: $5,371/year
- Principal: $3,371/year
- Interest: $2,000/year
The calculator separates this so you can see how much is "rent" for the money vs. paying down the loan.
4. Principal Repayments - Paying Down the Loan
What it is: The portion of your payments that actually reduces the loan balance.
📝 Simple Example:
Using the same $100,000 loan:
Principal Repayment = $3,371/year
This money isn't an "expense" - it's building equity in your business!
5. Lease Payments - If You Rent Equipment/Property
What it is: Monthly payments for leased equipment, vehicles, or property.
📝 Simple Example:
Your coffee shop leases:
- Espresso machine: $300/month
- Delivery van: $400/month
Lease Payments = $700/month × 12 = $8,400/year
6. Tax Rate - What the Government Takes
What it is: Your business's income tax rate. This affects your after-tax cash flow.
📝 Simple Example:
If your business makes $100,000 and has a 25% tax rate:
Taxes = $25,000
Your after-tax income = $75,000
🔢 Ready to Calculate Your DSCR?
Now that you understand each field, try our calculator! It automatically converts everything into yearly amounts and gives you a clear picture of your debt repayment capacity.
Real-World Examples
Example 1: Small Bakery Business
The Situation: Sarah owns a bakery that wants to expand. She needs a $50,000 loan.
Bakery's Numbers:
Annual Revenue: $200,000
Operating Expenses: $120,000
NOI = $80,000
Current Debt:
Existing loan: $20,000/year
New loan requested: $12,000/year
Total Debt Service = $32,000
Result:
DSCR = $80,000 ÷ $32,000 = 2.5
✅ Excellent! Sarah's bakery makes 2.5 times what she needs for debt payments. Banks will love this!
Example 2: Struggling Retail Store
The Situation: Mike's clothing store is having a tough year and needs to restructure debt.
Store's Numbers:
Annual Revenue: $150,000
Operating Expenses: $140,000
NOI = $10,000
Current Debt:
Store loan: $15,000/year
Credit line: $5,000/year
Total Debt Service = $20,000
Result:
DSCR = $10,000 ÷ $20,000 = 0.5
🚨 Danger! Mike only makes half of what he needs for debt payments. He needs to talk to his bank immediately.
16 Frequently Asked Questions
1. What's a "good" DSCR?
Answer: Most lenders want to see at least 1.25. Below 1.0 is red flag territory. Above 1.5 is excellent.
2. Is DSCR the same for all businesses?
Answer: No! Restaurants might need 1.3+, while stable utilities might get away with 1.1. Check industry standards.
3. How often should I check my DSCR?
Answer: Monthly for struggling businesses, quarterly for stable ones. Our calculator saves your history so you can track changes.
4. Can I improve my DSCR?
Answer: Yes! Increase income (top number) or reduce debt payments (bottom number). Even small improvements help.
5. What if my DSCR is below 1.0?
Answer: Talk to lenders immediately. You might need debt restructuring, a payment plan, or emergency financing.
6. Do personal expenses count?
Answer: Only if they're business expenses. Personal car payments or mortgages don't count in business DSCR.
7. How do lenders use DSCR?
Answer: They calculate it to decide if you can handle more debt. Higher DSCR = better loan terms.
8. What's the difference between DSCR and debt ratio?
Answer: DSCR looks at cash flow vs. payments. Debt ratio looks at total debt vs. assets. Both are important!
9. Should I include owner's salary in NOI?
Answer: Yes, if it's a normal business expense. The goal is to see the business's true earning power.
10. What currency should I use?
Answer: Use whatever currency your business operates in. Our calculator supports 50+ currencies with automatic conversion.
11. How accurate are the calculations?
Answer: 100% mathematically accurate. We use the same formulas banks use. But always verify with your accountant.
12. Can I save my calculations?
Answer: Yes! Click "Save to History" and your calculation is stored. You can export it as PDF, Excel, or text.
13. What's the "Calculation History" tab?
Answer: It shows all your past calculations so you can track your DSCR over time. Great for seeing improvement!
14. How do I improve a low DSCR?
Answer: Focus on either making more money (increase sales, raise prices) or paying less debt (refinance, extend loan terms).
15. Is seasonal business DSCR different?
Answer: Yes! Calculate DSCR for your worst month, best month, and yearly average. Lenders look at all three.
16. Do I need special software?
Answer: No! Our free calculator gives you professional results. Just plug in your numbers and get instant answers.
Pro Tips for Using the Calculator
💡 Tip 1: Be Conservative
Use your worst-case numbers, not best-case. If you think you'll make $100,000-$120,000, use $100,000 for DSCR calculations.
💡 Tip 2: Update Regularly
Business changes fast! Update your DSCR whenever you get new financial statements or take on new debt.
💡 Tip 3: Use Multiple Scenarios
Calculate DSCR for "good year," "bad year," and "average year" scenarios. Know your limits!
💡 Tip 4: Export for Meetings
Use the "Save as PDF" feature before meeting with bankers or investors. Show them the numbers!
🔄 The Improvement Cycle
Improving your DSCR is a simple 4-step process:
- Calculate your current DSCR using our calculator
- Identify whether you need more income or less debt
- Take Action - cut expenses, increase sales, refinance debt
- Recalculate monthly to track progress
Even improving from 1.1 to 1.3 can mean thousands in saved interest!
Final Thought: Why This Matters
Understanding your DSCR isn't just about getting loans - it's about business survival. Businesses with strong DSCR:
- ✅ Get better loan terms (lower interest rates!)
- ✅ Survive economic downturns
- ✅ Have cash for opportunities
- ✅ Sleep better at night
- ✅ Attract investors
- ✅ Grow more confidently
Whether you're a seasoned business owner or just starting out, knowing your DSCR is one of the most important financial skills you can develop.
🎯 Remember This:
DSCR is just a tool - but it's a powerful one. Use it regularly, understand what it tells you, and make decisions based on the numbers. Your future self will thank you!