What DSCR measures
The Debt Service Coverage Ratio (DSCR) is the first test a commercial lender runs on a deal: it asks whether the property's income covers its loan payments, and by how much. It is the cushion between what a building earns and what it owes — the margin that keeps a loan current when a tenant leaves or expenses spike.
The formula: DSCR = Net Operating Income (NOI) ÷ Annual Debt Service. If a property produces $300,000 of NOI and the annual mortgage payment (principal + interest) is $240,000, the DSCR is 1.25× — the property earns $1.25 for every $1.00 of debt service. NOI is income after operating expenses but before debt service; debt service is the full annual principal + interest (test the fully-amortizing payment, not an interest-only teaser).
How lenders read it
A DSCR of 1.0× is break-even: every dollar of income goes straight to the loan, leaving nothing for surprises. Most commercial lenders require a minimum of 1.20× to 1.25× to fund, and many size the loan down until the deal clears that threshold. Below 1.0× the property cannot service its debt from operations — the owner is feeding the mortgage out of pocket, which is how deals default. Agency multifamily lenders often want 1.25×; bank and bridge debt varies with the borrower and the business plan.
Three worked examples
The math is the same across asset classes — what changes is where the NOI comes from and the coverage a lender expects.
1. ~50-unit multifamily. 50 units at $1,400/mo = $840,000 gross potential rent; less 6% vacancy and a 42% expense ratio leaves roughly $458,000 NOI. A $6,000,000 loan at 6.5% over 30 years costs about $455,000/yr in debt service. DSCR = $458,000 ÷ $455,000 = 1.01× — the deal technically covers but sits far below the 1.25× agency floor, so the lender sizes the loan down (or you bring more equity) until it clears.
2. Industrial (single-tenant). An 80,000 SF building leased at $9.00/SF NNN = $720,000 of nearly-net income; a landlord-cost reserve trims NOI to about $690,000. A $7,000,000 loan at 6.75% over 25 years runs roughly $580,000/yr. DSCR = $690,000 ÷ $580,000 = 1.19× — just under a typical 1.20× bank minimum; a long-term, credit-tenant lease can earn an exception, a short remaining term will not.
3. IOS (industrial outdoor storage). A 5-acre yard at $8,000/acre/month = $480,000 gross; net of the carry a covered-land owner bears, call it $430,000 NOI. A $4,000,000 loan at 7.25% over 25 years costs about $347,000/yr. DSCR = $430,000 ÷ $347,000 = 1.24× — financeable, but IOS lenders scrutinize lease term and tenant quality because the income is easier to displace than a building's.
Minimum DSCR by asset class
There is no universal floor — lenders set it by how stable the income is. As a rough frame:
| Asset / loan type | Typical minimum DSCR |
|---|---|
| Multifamily (agency / stabilized) | 1.20–1.25× |
| Industrial / single-tenant net lease | 1.20–1.40× (credit-dependent) |
| Retail / office (multi-tenant) | 1.25–1.40× |
| Hotels / self-storage | 1.40–1.50× |
| SBA 7(a) / 504 | ~1.15× |
The pattern is risk: durable, diversified income (stabilized apartments) clears at a lower ratio; volatile, operations-heavy income (hotels) needs a thicker cushion.
Global (portfolio) DSCR — what lenders look at beyond one property
A single-property DSCR can clear while the borrower still fails the test. A global DSCR pools all of an entity's (or guarantor's) income and all of its debt service — every property, plus personal or corporate obligations — into one ratio. Banks underwriting a relationship, an SBA loan, or a recourse borrower routinely require a global DSCR (often around 1.15–1.25×) in addition to the property-level number, because a portfolio carrying several thin deals is fragile even if no single asset is underwater. If you own multiple assets, model the pooled ratio, not just the deal in front of you.
How to use the result
If your DSCR comes in under the lender's floor, you have three levers: raise NOI (push rents, cut expenses, or fix an understated income line), lower the loan amount (more equity, lower LTV), or lower the rate or extend amortization to shrink the annual payment. Watch the amortization assumption closely — an interest-only period flatters DSCR today but the number tightens when the loan begins amortizing. A healthy going-in DSCR with room above the minimum is what gives a deal the resilience to survive a soft year without a capital call.
DSCR by scenario
Go deeper on the situation you're in: the Commercial DSCR Calculator (all asset classes + global DSCR), the Multifamily DSCR Calculator (agency 1.25× framing), and DSCR at Refinance / Stress Test (will the deal still pass at today's rates).
DSCR is one number — underwrite the whole deal
Coverage tells you whether the loan is safe today; it says nothing about the exit, reserves, IRR, or where the return actually comes from. Underwrite the whole deal in UpsideIQ — a full 10-year DCF, reserves, refinance and exit, modeled at both interest-only and P&I, with a graded deal score. See pricing.