DSCR (Debt Service Coverage Ratio): Glossary - Business Expert
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DSCR (Debt Service Coverage Ratio): Glossary

Debt service coverage ratio divides your operating income by your debt repayments, so 1.2 means income covers the repayments and leaves 20% over. Commercial lenders want a margin over 1.0, and they stress test it at higher interest rates than you are paying now.

Mike Smith
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Mike Smith
Updated on 4 September 2026
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DSCR (Debt Service Coverage Ratio) measures a borrower’s ability to service debt from operating income. It is the ratio of net operating income to total debt service (principal and interest repayments). Lenders use it to assess whether a business or investment property generates sufficient income to cover its debt obligations.

Calculation

DSCR = Net Operating Income ÷ Total Debt Service

A DSCR of 1.0 means income exactly covers debt repayments. A DSCR above 1.0 means the borrower generates surplus income after servicing debt. A DSCR below 1.0 means income is insufficient to cover debt repayments.

Example: Net operating income of £120,000, annual debt service (principal + interest) of £100,000 → DSCR = 1.2x.

What Lenders Require

Commercial mortgage and investment property lenders typically require a minimum DSCR of 1.25x to 1.3x. This provides a buffer: income can fall by 20–25% before debt service becomes unaffordable.

Lenders apply DSCR stress tests (calculating DSCR at assumed higher interest rates) to assess resilience.

DSCR in Different Contexts

Commercial mortgages: Rental income from the property compared to mortgage payments.

Business loans: Operating cash flow compared to loan repayments.

Investment property: Net rent (after voids, management, and maintenance) compared to debt service.

  • ICR (Interest Coverage Ratio): a simpler version that divides income by interest only (not principal)
  • Stress test: calculation of DSCR at higher-than-current interest rates
  • Loan serviceability: the broader concept of whether a borrower can afford a loan