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Debt Service Coverage Ratio (DSCR)

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While several factors are considered in commercial loan underwriting, debt service coverage is primary among them and indicates a borrower's capacity to service a loan. This tool calculates the Debt Service Coverage Ratio (DSCR) and illustrates how DSCR is impacted by changing income, equity and capital assumptions.

Debt Service Coverage Ratio (DSCR) Definitions

New loan amount
Total amount of your loan.
Amortization in years
Payment period in years.
Debt service ratio
Lenders set their own "Debt Service Coverage Ratios" for the income (cash flow) required to service the amount and terms of a loan/mortgage. A typical ratio is 1.25, but can be higher or lower depending on the loan and lender. The DSCR required for a new loan can vary by lender, asset quality, equity and other factors. You should check with your lender to determine the required DSCR for your existing or new loan.
Interest rate
Annual interest rate for this loan. Interest is calculated monthly on the current outstanding balance of your loan at 1/12 of the annual rate.
New monthly payment
Monthly payment for this loan.
EBITDARM represents earnings before interest, taxes (income), depreciation, amortization, rent and management fees. This represents net operating income before 'provision for management fees' and after property expenses associated with real estate taxes and insurance.
Provision for management costs
Lenders typically require a provision for management costs of not less than 5% of revenue. The resulting EBITDAR represents operating cash flow available for debt service (or rent as applicable), before provision for capital expenditures.
EBITDR represents earnings before interest, taxes (income), depreciation and rent. This represents net operating income after 'provision for management fees'.
Provision for capital expenditures
Lenders typically require a provision for capital expenditures to fund capital needs associated with continuing operations.
Debt service coverage (DSC)
The debt service coverage is determined by dividing the total annual income available to pay debt service by the annual debt service requirement.