DSCR (Debt Service Coverage Ratio): The Lender's Most Important Metric
DSCR is the single most important number a commercial real estate lender will look at on your deal. It determines loan size, rate, and approval. Understanding it precisely — and knowing the minimums by loan type — is what separates closed deals from rejected applications.
What Is DSCR?
The Debt Service Coverage Ratio (DSCR) is the ratio of a property's Net Operating Income (NOI) to its annual debt service. It measures the property's ability to cover its loan payments from its own operating income — a critical risk metric for every commercial lender.
Example: NOI of $250,000 ÷ Annual Debt Service of $200,000 = DSCR of 1.25
A DSCR of 1.25 means the property generates 25% more income than needed to make its mortgage payments. A DSCR of 1.00 means it just breaks even — most lenders won't touch this. A DSCR below 1.00 means the property loses money before any debt service, which is a major red flag.
Minimum DSCR Requirements by Loan Type
Every loan program has a different DSCR floor. Here are the standards Central Florida CRE borrowers should expect:
| Loan Type | Min DSCR | Notes |
|---|---|---|
| Bridge Loans | 1.00–1.10 | Often interest-only; stabilization plan required |
| CMBS / Conduit | 1.20–1.25 | Hotel and retail may need 1.40+ |
| Agency Multifamily (Fannie/Freddie) | 1.25 | Top-tier markets like Orlando, Tampa |
| Small Balance Multifamily | 1.20–1.25 | Loans under $7.5M |
| HUD 223(f) Refinance | 1.11 | Lowest DSCR in the industry |
| HUD 221(d)(4) Construction | 1.11 | At stabilization |
| SBA 504 | 1.15–1.25 | Owner-occupied required |
| SBA 7(a) | 1.20–1.25 | More flexible than 504 |
| Hard Money / Private | 0.90–1.20 | Asset-based; story-friendly |
| Hotel CMBS | 1.40+ | Higher risk asset class |
How DSCR Affects Loan Size
Lenders size loans by working backwards from your DSCR. If your NOI is $300,000 and a lender requires a 1.25 DSCR, your maximum allowed debt service is $300,000 ÷ 1.25 = $240,000 per year. From that they calculate the maximum loan amount based on rate and amortization.
This is why understanding DSCR matters before you make an offer. If a property doesn't generate enough NOI to support your desired leverage, you can't close the deal as planned — regardless of the asking price.
How to Improve a Weak DSCR
- Lower the loan amount — bring more equity
- Longer amortization — 30-year vs 25-year reduces annual debt service
- Lower the rate — shop multiple lenders, consider IO periods
- Increase NOI — through value-add work pre-close (rare but possible)
- Use bridge-to-perm — finance acquisition + stabilization, refi at higher DSCR
Calculate Your DSCR Free
Input NOI and debt service, instantly see DSCR — and which loan programs your deal qualifies for.
Open DSCR Calculator →Frequently Asked Questions
What is DSCR in commercial real estate?
DSCR (Debt Service Coverage Ratio) is the ratio of a property's Net Operating Income (NOI) to its annual debt service. It measures how easily a property can cover its loan payments from its own income. A DSCR of 1.25 means the property generates 25% more income than needed to service the debt.
How is DSCR calculated?
DSCR = Net Operating Income ÷ Annual Debt Service. Example: NOI of $250,000 ÷ Annual Debt Service of $200,000 = DSCR of 1.25.
What is the minimum DSCR commercial lenders require?
Minimum DSCR requirements vary by lender and asset class. Bridge lenders may accept 1.00–1.10, agency multifamily lenders typically require 1.25, CMBS loans 1.20–1.25, SBA 504 loans 1.15–1.25, and HUD multifamily loans 1.11. Hotel and special-purpose properties often require 1.40+.
What is a good DSCR for commercial real estate?
A DSCR of 1.25 or higher is generally considered healthy for commercial real estate. A DSCR below 1.00 means the property cannot cover its debt service from operating income — a red flag for lenders and a sign the deal may be too leveraged.