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DSCR calculator for a debt raise
Enter net operating income or EBITDA, the loan amount, the interest rate, the amortization period and the lender's minimum DSCR. You get the coverage ratio, the yearly debt service and the maximum loan at that minimum.
Cash and debt
DSCR
1.32x
- Debt service a year
- $910,178
- Largest loan at the minimum DSCR
- $12,656,866
- Cash left after debt service
- $289,822
Planning estimate from the figures you enter. Not investment, tax or legal advice.
How it is calculated
- Monthly payment = loan x r / (1 minus (1 + r) to the power of minus n), with r the monthly rate and n the months.
- Debt service = monthly payment x 12.
- DSCR = net operating income / debt service.
- Largest loan = (NOI / minimum DSCR) / debt service per dollar of loan.
Worked example: A $12 million loan at 6.5% over 30 years
| Debt service a year | $910,178 |
| DSCR | 1.32x |
| Largest loan at 1.25x | $12,656,866 |
| Cash left after debt service | $289,822 |
What lenders look for
Commercial real estate lenders commonly ask for a DSCR somewhere around 1.20x to 1.35x depending on property type and lender; corporate lenders test coverage on EBITDA with their own definitions. The term sheet defines it; use that definition.
Interest-only periods
During an interest-only period debt service is lower, so DSCR looks better. Lenders often test on the amortizing payment anyway. Show both in the lender data room.
The lender room
A debt raise room holds the historical financials or T-12, the rent roll or customer list, the projections, collateral documents, appraisals and the organizational documents of the borrower. Lenders read fewer files than equity investors but read them closely.
Mistakes to avoid
- Using projected NOI where the lender tests trailing NOI.
- Ignoring reserves and capital expenditure the lender deducts.
- Testing DSCR only on the interest-only payment.
- Sending lenders a model that does not tie to the financial statements.
Questions and answers
What is a good DSCR?
Above 1.0x the property or business covers its debt. Most lenders want a buffer, often 1.20x or more. Check the term sheet.
Is DSCR the same as interest coverage?
No. Interest coverage uses interest only; DSCR includes principal repayments.
Should the DSCR model go in the data room?
Yes, with the inputs tied to the financial statements, so a lender can rebuild it.