What is a debt service coverage ratio?
The money available to pay debts divided by the total of your debt payments. It shows how comfortably the business can carry a loan payment.
Loan Guide
What is a debt service coverage ratio, and how do you calculate it?
The debt service coverage ratio, or DSCR, is the money your business has available to pay debts divided by the total of your debt payments. Many lenders look for roughly 1.25 or higher, meaning the business brings in about a quarter more than its payments require. You can estimate it yourself before you apply.
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Key facts
- DSCR = cash available for debt payments ÷ total debt payments
- Many lenders look for roughly 1.25 or higher
- Above 1.0 means payments are covered; below 1.0 means they are not
- A smaller loan or longer term can improve the ratio
| Financing type | Business Financing |
|---|---|
| Typical amounts | Term loans $25K–$2M; equipment financing $10K–$500K |
| Decision time | As fast as 24 hours |
| Credit | All credit profiles considered; soft credit pull to start |
| Cost to apply | Zero cost to apply |
| Who we are | A business financing broker. We compare offers from our lender network; we are not a direct lender. |
In detail
The formula
Divide the cash your business has left to pay debts by everything you owe in debt payments over the same period. Cash available is your average monthly net deposits after operating costs. Debt payments include existing loans, leases and card payments plus the new payment you are applying for.
In detail
A worked example
Suppose the business keeps $15,000 a month after operating costs. It already pays $4,000 a month on debts, and the new loan would add $6,000. Total debt payments are $10,000. The ratio is $15,000 ÷ $10,000 = 1.5, which is above the 1.25 many lenders prefer.
- Cash available each month: $15,000
- Existing debt payments: $4,000
- New loan payment: $6,000
- DSCR: 15,000 ÷ 10,000 = 1.5
In detail
If your ratio is thin
Borrow a smaller amount, choose a longer term so the payment falls, pay down an existing debt first, or build up deposits for a few months. Test two or three loan sizes before you apply so you know which one the numbers support.
In detail
Why lenders care
The ratio answers the lender's central question: can this business repay without strain? A ratio just above 1.0 leaves no room for a slow month, which is why lenders usually want a cushion.
Preparation checklist
What to have ready before applying for business financing
Reading a guide is step one. Use this checklist to prepare before moving into a funding review.
- Know the specific amount needed and the business reason
- Have 3 months of business bank statements available
- Confirm monthly revenue and time in business
- Understand which product type fits the use of funds
- Be ready to describe the business model clearly
- Know whether the need is short-term, asset-based, or longer-term
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Where to go next: business financing options
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What to compare before choosing business financing
Owners should compare fit, cost, timing, payment burden, documentation, and how each option supports the business goal.
- Fit with use of funds
- Total repayment
- Funding speed
- Documentation
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Do I qualify?
Who typically qualifies for business financing
Most business owners who research this topic are eligible to begin a review. Here is what usually qualifies and what owners should not worry about.
Who qualifies
Businesses open 6+ months with active banking history
Monthly revenue of $10K or more across most products
All industries and business types considered
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Collateral is not required for many funding options
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Previous declines at other lenders are not automatic barriers
Partial or imperfect files are still worth submitting
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What it costs
How much does it cost to apply for business financing?
Applying through lendfloCapital after reading this guide is at no cost. There are no fees for business owners at any step of the process.
- At no cost to business owners — no application or review fee ever
- lendfloCapital earns from lenders only on funded matches
- Soft credit pull only — no hard inquiry during the review
- All pricing and terms disclosed before any commitment is made
- No surprise fees at any stage from application to funding
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Common questions
Frequently asked questions
What is a good DSCR for a business loan?
Many lenders look for roughly 1.25 or higher, meaning the business brings in about a quarter more than its payments require. Requirements vary by lender.
How do I calculate DSCR?
Take your average monthly net deposits after operating costs, add up existing loan, lease and card payments plus the proposed payment, and divide the first number by the second.
How can I improve my DSCR?
Apply for a smaller amount, choose a longer term to lower the payment, pay down existing debt, or build consistent deposits before you apply.
Written by lendfloCapital Editorial Team · Last updated
lendfloCapital is a business financing broker, not a lender. This page is general information, not financial, legal or tax advice. Rates, amounts and terms depend on the lender and your business.
How we write and check our pages · Source links last checked
Official sources for further reading
- SBA 7(a) loans (U.S. Small Business Administration)
The SBA's most common loan program, with uses that include working capital and equipment. - SBA loan programs (U.S. Small Business Administration)
Overview of the government-backed 7(a), 504 and microloan programs offered through participating lenders. - Small Business Credit Survey (Federal Reserve Banks)
Annual research on how small businesses apply for, receive and use financing.
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