Why DSCR (Debt Service Coverage Ratio) Is Important To Lenders
BRANDI SHOTWELL
?? Commercial Mortgage Broker / Billions Funded / Helping You Get to the Closing Table With Confidence
You may have heard or seen the acronym DSCR from your lender but are not really sure what it means or its implications. Let me break this down for you….
Debt service coverage ratio (DSCR) is one of many financial ratios that lenders assess when considering a loan application. This ratio is especially important because the result gives some indication to the lender of whether you'll be able to pay back the loan with interest.
While every lender is different, most that assess DSCR look for a ratio of 1.25x or more.?
Why? The higher your DSCR, the more income you have to pay off your debt.
Lenders don’t want to lose their investments or take the trouble of chasing down a borrower who defaults. So, they look for reassurance that your business has generated—and will continue to generate—enough income to pay back the loan with interest.
Without a strong cash cushion, your business is at risk.?
The DSCR gives lenders a look into your company’s cash flow and how much extra cash you have on hand to cover your loan payments and run your business comfortably as well.