Free Tool
DSCR Calculator
DSCR (debt service coverage ratio) measures whether a business earns enough to pay its loans. It is net operating income divided by total annual debt service. A DSCR of 1.25x means $1.25 of income for every $1.00 of loan payments, the minimum most SBA and conventional lenders want to see.
Interactive
DSCR CALCULATORWill your numbers clear the bar?
Enter your annual net operating income and your annual debt payments. DSCR is the first ratio a lender runs.
Your DSCR
1.27x
Annual cushion
$20,000
Lender-ready — 1.25 to 1.35
This clears the 1.25x bar most SBA and conventional lenders want. There is real cushion to absorb a soft period.
Rule of thumb: most SBA and conventional lenders want 1.25x or better. This is a teaching estimate, not an underwriting decision. PlanMason builds DSCR from your full projections and shows the math a lender will check.
Why DSCR is the first ratio a lender runs
Before a lender reads a word of your narrative, an underwriter divides your net operating income by your annual debt payments. That one number answers the only question that matters to them: if we make this loan, does the business generate enough cash to pay it back? Collateral, credit score, and story all come after coverage. A plan with a thin DSCR does not get argued over. It gets set aside.
What ratio lenders actually want
The working standard is 1.25x. The SBA floor for larger 7(a) loans is 1.15x, but the bank writing the loan holds you to its own credit box, and 1.25x is where most SBA and conventional lenders get comfortable. Between 1.15x and 1.25x you are borderline: some banks will do it with strong collateral or credit, many will not. At 1.35x and above, your file has cushion, and cushion is what lets an underwriter advocate for you in loan committee instead of defending you.
A worked example
Say your business projects $95,000 of net operating income next year: profit before loan payments and taxes. You are applying for a loan that costs $60,000 a year in principal and interest, and you already carry an equipment note at $15,000 a year. Total debt service is $75,000. DSCR is $95,000 divided by $75,000, which is 1.27x. That clears the 1.25x bar with a $20,000 annual cushion. Now run the stress test a lender will: if revenue slips 10 percent and income falls to $80,000, coverage drops to 1.07x, and the same file becomes a decline. That gap between 1.27x and 1.07x is why lenders want scenarios, not just a base case.
From one ratio to a fundable plan
This calculator is a teaching estimate: two inputs, one ratio. A lender computes DSCR from your full projections, month by month, and checks that the narrative and the numbers tell the same story. That is the part founders get wrong, and it is the part PlanMason builds: a 36-month proforma with DSCR traced to source inputs and stress-tested at three scenarios, for every funding path from SBA and conventional loans to leases, equipment finance, grants, equity raises, and VR self-employment plans.
DSCR FAQ
Frequently asked questions
Q1What is a good DSCR for a business loan?
Most SBA and conventional lenders want 1.25x or better: for every dollar of annual loan payments, the business generates at least $1.25 of net operating income. Between 1.15x and 1.25x is borderline and usually needs strong collateral or credit to pass. Below 1.15x, most lenders decline. Above 1.35x, the underwriter can advocate for your file instead of defending it.
Q2How do I calculate DSCR?
DSCR = net operating income divided by total annual debt service. Net operating income is profit before loan payments and taxes. Total debt service is the year of principal plus interest across all loans, including the one you are applying for. Example: $95,000 of net operating income against $75,000 of annual debt payments is a DSCR of 1.27x.
Q3What DSCR does the SBA require?
The SBA sets 1.15x as the minimum for 7(a) loans over $350,000, but the bank making the loan almost always wants more. In practice, 1.25x is the working standard for SBA and conventional lenders alike, because the bank underwrites to its own credit box, not just the SBA floor.
Q4Is DSCR calculated on projections or actuals?
Both, depending on the business. An existing business is underwritten on trailing actuals from tax returns, then checked against projections. A startup is underwritten on projections, which is why lenders scrutinize every assumption behind them. Either way, the lender recomputes DSCR from your financials. If your plan states a DSCR the lender cannot reproduce, that is a red flag.
Your DSCR is one number.
Your plan has to defend it.
PlanMason builds the full packet behind the ratio: projections, scenarios, and narrative that hold up in front of lenders, grant reviewers, landlords, investors, and VR counselors.
Free interview and draft plan. Full Lender Packet from $49.
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