DSCR — debt-service-coverage ratio — measures whether a property's or business's income covers its debt payments. It's net operating income divided by total debt service (the loan payments). A DSCR of 1.0 means income exactly covers the payments; above 1.0 means there's a cushion; below 1.0 means income falls short. Lenders use it to gauge whether a loan can be repaid from the asset's own cash flow.
The formula: DSCR = net operating income ÷ annual debt service. If a property nets $120,000 a year and the loan payments total $100,000, the DSCR is 1.2 — income covers the payments with 20% to spare.
What counts as a “good” DSCR: it depends on the lender and the asset, but many look for a cushion above 1.0 (commonly around 1.2 to 1.25) so there's room for vacancies or surprises. A lower ratio isn't automatically a decline — it's one input among the collateral, the operator, and the plan.
Why lenders care: DSCR answers a simple question — can the asset pay for itself? For income-producing real estate, it's a core measure of whether a loan is repayable without stress.
How it fits our underwriting: we read cash flow alongside the collateral, the operator, and the exit — not one number in isolation. A tight DSCR with a strong plan and a clear exit can still be a fundable deal. We lend secured by real estate across nine Western states.
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Related: Asset-based lending · Lending in Texas