What is DSCR and why does it matter for business loans?

DSCR (Debt Service Coverage Ratio) measures how well your cash flow covers debt payments. DSCR = Net Operating Income / Annual Debt Service. A DSCR of 1.25 means you generate $1.25 of cash flow for every $1.00 of debt payments — the minimum most lenders require. Below 1.0 means your business doesn't generate enough cash to cover debt service, which is a firm decline for most lenders.