DSCR
Last reviewed 13 June 2026 by Nick Lim, finance broker (FBAA).
DSCR, or debt service coverage ratio, measures how well a business's cash flow covers its loan repayments, calculated as net operating income divided by total debt service. Lenders often want a DSCR of at least 1.25 to 1.5, meaning cash flow covers repayments with a 25 to 50 percent buffer; below 1.0 means the business cannot cover its debt from operations. It sits beside ICR and serviceability as a core commercial lending test.
Why DSCR Matters
DSCR tells a lender whether the business actually generates enough cash to cover its repayments, with a margin.
- Net operating income divided by total debt service
- Lenders often want at least 1.25 to 1.5
- Below 1.0 means operations cannot cover the debt
- Used with ICR and serviceability
- A common loan covenant on commercial loans
Common Features of DSCR
- Cashflow measured against full repayments
- Includes principal, unlike ICR
- Higher is safer for the lender
- Tested at approval and over the loan
- Often a maintained covenant
Official reference: business.gov.au
What is DSCR?
The debt service coverage ratio, net operating income divided by total debt service, showing how well cashflow covers repayments.
What DSCR do lenders want?
Often at least 1.25 to 1.5, giving a 25 to 50 percent buffer over repayments.
DSCR vs ICR?
ICR covers interest only; DSCR covers the full repayment including principal.
What does a DSCR below 1.0 mean?
That the business does not generate enough cash to cover its debt from operations.
Why does DSCR matter for a cafe or small business?
It is how a lender checks the trade can actually service the loan, alongside serviceability.