DSCR Explained: How Banks Calculate Debt Service Coverage Ratio
The single ratio that decides whether your loan looks repayable is the Debt Service Coverage Ratio (DSCR). Every credit officer checks it.
Formula
DSCR = (Net Profit + Depreciation + Interest on Term Loan) ÷ (Interest + Principal Repayment)
It tells the bank how comfortably your annual cash profit covers the year’s loan obligations.
What’s a good DSCR?
Banks generally want an average DSCR of 1.5 to 2.0 over the loan tenure. A value below 1.25 signals repayment stress and usually leads to rejection or a lower sanction.
Check yours instantly with this free DSCR calculator before you submit your file.
How to improve it
Realistic but healthy margins, a sensible repayment tenure, and a correct depreciation schedule all improve DSCR. These flow automatically when you generate a bank project report.
FAQ: Yearly or average DSCR?
Banks look at both — each year’s DSCR and the average across the loan period. Avoid any single year dipping below 1.
