Debt service coverage ratio (DSCR)

Debt service coverage ratio, or DSCR, measures a property or business's net income against its total debt obligations — interest and principal together — rather than interest alone, giving a more complete read on whether income genuinely supports the facility as structured. Lenders financing income-producing commercial property typically want to see a DSCR comfortably above one, with the specific threshold varying by asset class, tenant quality and lease structure. A facility that passes on ICR but fails on DSCR usually signals that the loan is affordable on an interest-only basis but not once amortisation begins, which matters directly to how a facility is structured, including whether an interest-only period is appropriate. Lenders will typically model DSCR against a vacancy or rate-rise scenario as well as the current position, since a ratio that only works at full occupancy and today's rate carries meaningfully more risk.

Related

Commercial property loans · ICR · Cap rate