Debt Service Coverage Ratio

DSCR is a key financial metric used by banks and lenders to assess whether a business or individual generates enough income to cover loan repayments (principal + interest).

It is widely used in business loans, project finance, and real estate financing.

Formula

👉 DSCR = Net Operating Income ÷ Total Debt Service

Where:

• Net Operating Income (NOI): Income after operating expenses
• Debt Service: Total loan repayment (principal + interest)

Why DSCR Matters

• Indicates repayment capacity
• Helps lenders approve or reject loans
• Used in credit risk assessment

Interpretation

• DSCR > 1: Sufficient income to repay loan
• DSCR = 1: Break-even (just enough)
• DSCR < 1: Insufficient income → higher risk

Ideal DSCR

• Typically 1.2 to 1.5 or higher is preferred by lenders

"If a business earns ₹10 lakh annually and has ₹8 lakh loan repayment: 👉 DSCR = 1.25 → Good repayment capacity"