Debt service coverage ratio (DSCR)
Last updated
Quick Answer
Debt service coverage ratio is cash available for debt service divided by total debt service.1,2
Formula
cash available for debt service / total debt service
What it is
It answers one question for a lender: does the business generate enough cash to make its payments. The numerator is cash available after operating expenses and before debt service; the denominator is principal plus interest for the period. Your lender's own credit policy defines both terms precisely in your covenant, and those definitions vary.1,2
Operational context
What good looks like
Why It Matters
It is the number your loan is measured on, so it is the constraint every other operating decision runs into. A price increase, a hire, an equipment purchase and a slow-paying customer all show up here before they show up anywhere else.1
Common mistakes
Term Family
Tools & Resources
Frequently Asked Questions
What is Debt service coverage ratio (DSCR) in venture capital?
It answers one question for a lender: does the business generate enough cash to make its payments. The numerator is cash available after operating expenses and before debt service; the denominator is principal plus interest for the period.
Why is Debt service coverage ratio (DSCR) important for startups?
Understanding Debt service coverage ratio (DSCR) is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
Sources & References
- 1.A1-06 — SBA SOP 50 10 Version 8, eff. 2025-06-01 (.docx)SBA SOP 50 10 Version 8, eff. 2025-06-01 (.docx)Gov / statistical primary(Debt service coverage ratio is cash available for debt service divided by total debt service.)primary · A1 · finance-ops · metric
- 2.A1-07 — Federal Reserve, 2026 Report on Employer Firms (2025 SBCS)Federal Reserve, 2026 Report on Employer Firms (2025 SBCS)Gov / statistical primary(Debt service coverage ratio is cash available for debt service divided by total debt service.)primary · A1 · finance-ops · metric
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