Why the Debt Service Coverage Ratio (DSCR) Is the #1 Metric Lenders Look At

💡 What Is DSCR?

The Debt Service Coverage Ratio (DSCR) measures your business’s ability to pay back a loan using its operating income.
It answers the question every lender wants to know:
“Can this business afford to repay the loan it’s asking for?”

📐 How It’s Calculated

DSCR = Net Operating Income / Debt Payments

✅ A DSCR of 1.25 means you generate $1.25 for every $1.00 you owe in debt payments.
❌ A DSCR below 1.0 means you’re not generating enough to cover your debt — a red flag for lenders.

📉 Why It Matters to Lenders

Lenders aren’t just looking at your revenue — they’re looking at your cash flow vs. debt obligations.
A strong DSCR tells them:

You’re not overleveraged
You have enough buffer to absorb risk
You can repay on time

🧠 What’s a “Good” DSCR?

Type of Loan	Minimum DSCR
Traditional Bank Loan	1.25 – 1.50
Financement d'équipements	1.10 – 1.25
Alternative Lenders	As low as 1.00 (case by case)

A higher DSCR = more financing options + better terms.

⚠️ Common DSCR Pitfalls to Avoid

❌ Ignoring principal repayments
❌ Overestimating revenue
❌ Forgetting seasonal cash flow dips

If your DSCR is too low, it’s often better to adjust your financing ask or find a structure that fits your reality.

✅ How Finmed Capital Helps

At Finmed Capital, we help you:

Calculate your DSCR accurately
Understand which type of financing fits your ratio
Present your business in the best light to lenders

Whether you’re applying for a loan, refinancing debt, or seeking new growth capital, knowing your DSCR can be the difference between a “yes” and a “no.”