Debt service coverage ratio: Difference between revisions

Revision as of 10:21, 3 December 2022

Revision as of 11:48, 15 December 2022

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In personal finance, DSCR refers to a ratio used by bank loan officers in determining debt servicing ability.

In commercial real estate finance, DSCR is the primary measure to determine if a property will be able to sustain its debt based on cash flow. In the late 1990s and early 2000s banks typically required a DSCR of at least 1.2,{{Citation needed|date=January 2009}} but more aggressive banks would accept lower ratios, a risky practice that contributed to the [[Financial crisis of 2007–2010]]. A DSCR over 1 means that (in theory, as calculated to bank standardsmeansrds and assumptions) the entity generates sufficient cash flow to pay its debt obligations. A DSCR below 1.0 indicates that there is not enough cash flow to cover loan payments, But many times some lenders also provide [https://www.dilkhus.com/dscr-loans-florida-requirements-and-interest-rates/ DSCR loans] below 1 dscr. In certain industries where non-recourse project finance is used, a Debt Service Reserve Account is commonly used to ensure that loan repayment can be met even in periods with DSCR<1.0 <ref name="Corality Financial Modelling">[http://www.corality.com/tutorials/dscr-debt-service-coverage-ratio Corality Debt Service Coverage Ratio Tutorial]</ref>

==Calculation==