How to use our DSCR loan calculator
Step 1. Enter the details
The details you’ll provide vary depending on whether you’re trying to finance a real estate investment or secure a small-business loan for some other business purpose.
The two tables below cover both scenarios.
2. Calculate your DSCR
Once you hit “calculate,” our tool will generate your DSCR.
Here’s how you can interpret your result:
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DSCR greater than 1. Your cash flow exceeds loan payments, indicating a strong business or real estate investment opportunity.
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DSCR equal to 1. You’re breaking even after covering loan payments.
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DSCR less than 1. Your cash flow isn’t enough to cover loan payments, signaling financial strain in your business or an unfavorable rental property investment.
What is DSCR?
It compares a business’s net operating income (NOI) to its total loan payments, providing insight into financial stability. A DSCR above one indicates that a business makes more than enough money to cover its current debts, while a DSCR below one may signal financial strain.
For example, if a business’s DSCR is 1.5, that means that it generates $1.50 for every $1.00 it pays back to lenders.
This ratio is a key metric for evaluating the profitability of real estate investments. In this case, it compares the property’s gross rental income to its mortgage payment, which includes principal, interest, property taxes, insurance and HOA fees. The higher the DSCR, the more profitable a rental property may be.
Similarly, if the DSCR on a rental property is 1.5, that means you’re getting $1.50 in revenue for every $1.00 you pay on the loan, or mortgage.
Who uses DSCR?
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Lenders use DSCR to determine a potential borrower’s eligibility for a small-business loan or DSCR loan.
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Small-business owners use it to assess a property’s profitability, determine their eligibility for a small-business loan and monitor their business’s financial health.
What DSCR do you need to qualify for a loan?
Many business lenders prefer a DSCR of 1.25 or higher to consider you for a loan. A higher DSCR indicates stronger financial health and increases the likelihood you’ll be approved for a loan or unlock better loan terms.
How can I improve my DSCR?
To improve your DSCR for a rental property, consider increasing rent, finding lower home insurance rates, negotiating better mortgage terms, refinancing an existing loan or making a larger down payment.
For small-business loans, entrepreneurs can improve their DSCR by increasing revenue, reducing operational expenses and lowering debt obligations by paying off existing debt sooner.
