What Is DSCR and Why It Determines Your Business Loan Approval

Debt Service Coverage Ratio (DSCR) is one of the most important numbers in commercial lending — and most business owners don't know theirs until a lender tells them it's too low.

The Formula

DSCR = Net Operating Income ÷ Total Annual Debt Service

If your business generates $200,000 in net operating income and your annual debt obligations total $150,000, your DSCR is 1.33.

What Lenders Want to See

Most conventional lenders require a DSCR of at least 1.25. SBA lenders typically look for 1.15 or higher. A DSCR below 1.0 means your cash flow doesn't cover your existing debt — approval becomes very difficult without additional collateral or a co-borrower.

Why It Matters More Than Credit Score

A strong personal credit score with a DSCR below 1.0 won't get you funded. Lenders need to see that the business itself generates enough cash to repay what it's borrowing. Credit score gets you to the table — DSCR gets you the money.

How to Improve Your DSCR Before Applying

Paying down high-interest revolving debt lowers your annual debt service and improves your ratio immediately. Documenting all revenue streams — including cash transactions — raises your stated net operating income. Avoiding new debt obligations in the 6–12 months before applying keeps your DSCR from dropping at the wrong time.

Apply With the Right Number

Understanding your DSCR before you apply puts you in a stronger position. You know what to fix, what to document, and how lenders will read your file. Learn how 88 NewWin structures loan applications to give your deal the best chance of approval.