The debt service coverage ratio measures whether an asset or business generates enough cash flow to meet its debt payments. It is calculated as net operating income divided by total debt service (principal and interest) over a period. A DSCR above 1.0 means cash flow covers debt service.
Lenders use DSCR to size debt and set covenants; a higher ratio supports more borrowing capacity.
Assessed in project finance, real estate finance and corporate lending.
The debt service coverage ratio measures whether an asset or business generates enough cash flow to meet its debt payments. It is calculated as net operating income divided by total debt service (principal and interest) over a period. A DSCR above 1.0 means cash flow covers debt service.
Assessed in project finance, real estate finance and corporate lending.
DSCR measures cash flow — whether net operating income covers principal and interest payments — while loan to value measures the loan against the value of the asset securing it. Lenders use the two together: DSCR tests affordability period by period, and LTV tests the cushion of equity protecting the loan.
A DSCR above 1.0 means cash flow covers debt service, but lenders generally want a comfortable margin above that level before advancing funds. The headroom required depends on the asset, the stability of its income and the sector; steadier cash flows support tighter coverage, while volatile income demands a larger buffer.
Speak to a partner about how this applies to your transaction.
