The Debt Service Coverage Ratio (DSCR) is the number that decides whether your commercial real estate loan gets approved. Lenders do not care how optimistic your rent roll looks on a slide; they care about one cold division: how much cash the property throws off each year, divided by how much you owe them each year. This DSCR calculator runs that division instantly, tells you whether you clear the lender's minimum, and then sizes the largest loan your net operating income can actually support at today's rates.
Whether you are buying a duplex, a strip mall, or a 40-unit apartment building, the math is the same. Plug in your Net Operating Income (NOI), your proposed annual debt service, and the minimum ratio your lender requires, and the result card shows your DSCR, your cushion of cash flow after debt, and the maximum loan the property qualifies for.
How to Use
- Enter your Net Operating Income (NOI) — the annual rent and other income the property generates after operating expenses (property tax, insurance, maintenance, management, utilities), but before any mortgage payment. If you only have a monthly figure, multiply by 12.
- Enter your Annual Debt Service — the total annual principal and interest on the loan you are evaluating. Do not include escrow or reserves here unless your lender rolls them into the payment.
- Set the Lender Minimum DSCR. Most banks and credit unions ask for at least 1.20x–1.25x. SBA 7(a) loans often accept 1.15x, and some agency or life-company money asks for 1.30x or higher. If you do not know your lender's number, leave the default of 1.25x.
- Add your Interest Rate and Amortization Term to unlock the loan-sizing output. A 6% rate over 30 years is the market-default starting point; bump it to 7%–8% to stress-test for a tighter money environment.
- Read the result card. The top line is your DSCR. Below it, the calculator tells you whether you clear the lender threshold, how much annual cash flow is left after the mortgage, and the maximum loan the property can carry.
The ratio is a safety margin for the lender, not a reward for you. A DSCR of 1.00x means the property makes exactly enough to pay the mortgage — any vacancy or repair and you are paying out of pocket. A DSCR above 1.25x gives the property a comfortable buffer and usually wins you a better rate.
The DSCR Formula
The math is deliberately simple:
DSCR = Net Operating Income ÷ Annual Debt Service
For example, a property that produces $120,000 of NOI and carries an $80,000 annual mortgage payment has a DSCR of:
$120,000 ÷ $80,000 = 1.50x
That means the property earns 50% more than it owes. Most lenders would call this a healthy deal.
To work backwards — to find the biggest loan you can take out — you flip the ratio. If the lender demands a minimum DSCR of 1.25x on that same $120,000 of NOI, the maximum annual debt service the property can support is:
$120,000 ÷ 1.25 = $96,000 per year
That is $8,000 per month. Using the standard mortgage payment formula at 6% amortized over 30 years, a $8,000 monthly payment corresponds to a maximum loan balance of roughly $1,334,333. If a bank offered you more than that, the property would no longer cover its own debt at the 1.25x threshold.
What Lenders Actually Want
Commercial underwriting is far more about DSCR than about credit score. A borrower with a 740 credit score but a 1.05x deal will usually get declined, while a borrower with a 680 score on a 1.45x deal will often get funded. Typical lender minimums:
- 1.15x — SBA 7(a), some portfolio banks, low-leverage (<65% LTV) deals.
- 1.20x–1.25x — the market standard for multifamily, office, and retail bank loans.
- 1.30x–1.50x — hospitality, self-storage, new construction, or other higher-risk asset classes.
The calculator also shows your excess cash flow after debt service, which is the dollars left each year to cover capex, vacancy surprises, and your own cash-on-cash return. If that number is thin, you are not really getting paid to own the property — you are just working for the bank.
Examples
Example 1 — The default deal. A small apartment building throws off $120,000 of NOI each year. The proposed mortgage costs $80,000 a year. DSCR is 1.50x, comfortably above the 1.25x minimum. After debt, $40,000 of cash flow remains for the owner.
Example 2 — Failing the test. A retail property has $90,000 of NOI but a mortgage of $90,000 a year. DSCR is exactly 1.00x — the property breaks even. Because this is below the 1.25x minimum, the calculator flags the deal as does not meet lender threshold, and the excess cash flow is $0. To qualify, the buyer would need to put more money down (shrinking the loan) or negotiate a lower price.
Example 3 — Sizing the max loan. On the same $120,000 NOI with a 1.25x minimum, at 6% over 30 years, the property supports a maximum annual debt service of $96,000 ($8,000/month), which translates to a maximum loan of about $1,334,333. If you need to borrow $1.5M, either raise NOI by raising rents, lower the price, or accept a shorter amortization — which would actually shrink the loan, not grow it.
Example 4 — Large portfolio. A 40-unit portfolio produces $5,000,000 of NOI and carries a $3,000,000 annual debt service. DSCR is 1.67x, a strong cushion for a bank. The calculator scales cleanly to eight-figure properties; the math is identical whether the NOI is $120,000 or $5,000,000.
FAQ
What is a good DSCR for a commercial loan?
A DSCR of 1.25x or higher is the market standard and will clear most bank underwriting. Anything below 1.0x means the property does not generate enough income to cover its mortgage, and lenders will turn you down unless you have outside cash to support the loan. Between 1.0x and 1.25x, expect a higher rate, a lower leverage cap, or a decline. Above 1.5x, you are usually in a strong negotiating position.
How is DSCR calculated?
DSCR is simply Net Operating Income divided by Annual Debt Service. NOI is the property's income after operating expenses but before debt service. Annual debt service is the sum of principal and interest payments over the year. For example, $120,000 NOI divided by $80,000 debt service equals a 1.50x DSCR.
Can DSCR be too high?
A high DSCR is never a problem for the lender, but it can signal that you are being too conservative. A DSCR of 2.0x means you are borrowing far less than the property can support, which lowers your return on equity. Sophisticated borrowers push the loan up to the lender's minimum threshold (often 1.20x–1.25x) to maximize leverage and free cash to buy the next deal.
What is the difference between DSCR and debt yield?
DSCR measures annual cash flow against annual debt service (NOI ÷ debt service). Debt yield measures NOI against the loan amount itself (NOI ÷ loan), ignoring the interest rate and amortization. Lenders use both: DSCR tells them whether the monthly payment is covered, and debt yield tells them the return they would earn if they had to foreclose.
Do lenders use NOI or EBITDA for DSCR?
Commercial real estate lenders use NOI, not EBITDA. NOI starts from rental income and subtracts only operating expenses (taxes, insurance, maintenance, management, utilities). It excludes capital expenditures, depreciation, interest, and principal. EBITDA is used in corporate finance; mixing the two up is a common mistake that can make your DSCR look better than it really is.
What happens if my DSCR is below 1.0?
A DSCR below 1.0x means the property does not generate enough income to cover its mortgage. The shortfall (called negative cash flow) has to come out of your pocket every month. Lenders will almost never approve a new loan at this level, and an existing loan with a DSCR below 1.0x is in default risk territory — watch out for cross-default clauses and cash-management sweep provisions in your loan documents.
Disclaimer
This DSCR calculator is provided for informational purposes only and does not constitute financial, lending, or investment advice. Results are estimates based on the inputs you enter; actual lender requirements, interest rates, amortization schedules, and loan proceeds vary by institution, asset class, geography, and credit profile. NOI figures depend on how you classify operating expenses versus capital expenditures, and small changes in either side of the ratio can swing a loan approval. Always confirm sizing and terms directly with a qualified commercial mortgage lender before underwriting a deal.