Net Operating Income before debt service and taxes
Total P&I across all loans (12 × monthly P&I)
DSCR
1.33x
Lender-friendly
NOI$240,000
Debt service$180,000
Cushion$60,000/yr
What DSCR Means
DSCR = Net Operating Income ÷ Annual Debt Service. A 1.0x DSCR means your business generates exactly enough cash to make debt payments — no cushion. Lenders want a cushion to absorb downside risk.
Lender DSCR Thresholds (typical)
- SBA 7(a) operating business: 1.15x minimum
- SBA 7(a) acquisition: 1.20x minimum
- SBA 504 owner-occupied CRE: 1.20-1.30x
- Hotels & special-purpose: 1.30-1.40x
- Conventional CRE: 1.25-1.35x
- Investor DSCR loans: 1.00-1.25x depending on lender
How to Calculate NOI
Net Operating Income = Gross Revenue − Operating Expenses. Operating expenses include property tax, insurance, maintenance, utilities, management, payroll — but exclude debt service, depreciation, amortization, and income tax.
Don't confuse DSCR with cash flow. NOI is operating cash flow before debt and tax. DSCR tests whether that operating cash flow can support proposed debt. A high DSCR with low NOI may still be too small a deal for a lender; conversely a 1.10x DSCR on $5M NOI may still be approvable.