What Is a Debt Service Coverage Ratio?
Familiarize Yourself with Your DSCR
When applying for an SBA Express loan, lenders almost always check your "DSCR." For those who are unfamiliar with the term, debt service coverage ratio (DSCR) refers to the borrower's ability to repay debt obligations. Debt service is the money needed to cover both interest and principal in a payment period. The ratio is a formula that divides the net operating income of a business by the total debt service amount:
DSCR = Net Operating Income / Total Debt Service
So, a business with a DSCR of less than 1 does not have sufficient funds to pay back debt obligations, while a business with a DSCR of greater than 1 does.