Debt Service Coverage Ratio (DSCR)

Last updated on June 1st, 2025 at 09:57 pm

Understanding how banks, credit unions, and other traditional lenders work to decide on whether to lend your business money can better prepare you BEFORE you submit a business loan application.

For example, when applying for a traditional business bank loan, lenders will often use a formula called Debt Service Coverage Ratio or DSCR, and by using DSCR, the formula will spit out a ‘financial ratio’ which can reveal to the lender the financial health of your company.

Lenders will use this DSCR Ratio to get a measurement of your cash flow available to you business to service your current debt, and also, to lower their risk when lending your business money.

To simplify this, the DSCR Ratio reflects your businesses ability to service your company debt with the companies current cash flow.

A DSCR Ratio of 1.00 would indicate that your business produces exactly the right amount of revenue to service your company debt, in other words, you are breaking even, and there is nothing left after you pay your bills.

A DSCR Ratio of less than 1.00 reveals a negative cash flow, which reveals potential trouble when servicing your company debt.

In other words, if your business reveals a DSCR of, let’s say 0.95, this would mean that your business cash flow is only enough to service 95% of your company debt, and this would be a potential indicator of an unhealthy business.

There is no ‘standard’, but typically a DSCR Ratio of 2.00 is considered quite favorable as this ratio would indicate that the business is very strong and is able to service its debt two-times over.

In other words, a business with a DSCR Ratio of 2.00 has more than enough cash flow to service their current debts and to also take on additional debt.

However, many lenders will set a minimum DSCR Ratio of 1.2 to 1.25.

To figure out your company’s Debt Service Coverage Ratio (DSCR) yourself, simply divide your NET Operating Income by your Total Debt Service and the number that pops out is your DSCR Ratio.

Revenue Based Funding Keeps It Simple

Revenue Based Funding does not use DSCR.

Revenue Based Funding considers your business revenue, and a few other simple factors, and this type of funding is what I like to call ‘Opportunity Money’, which is funding meant for you to grow your business, by taking advantage of a growth opportunity that can substantially increase your revenue.

If you have an opportunity to help you to grow your business, and if you meet our minimum requirements, then you can get the funding that you need in less that 72 hours.

RevitUp Capital is in business to help you and your business succeed, by helping you to get the funding that you need, to take advantage of your next business opportunity.

Let us know how we can help.

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