Identify available cash
Ask which earnings or net operating income measure the lender uses and what adjustments are permitted.
GUIDE & CHECKLIST
Understanding DSCR
Debt service coverage ratio compares cash available for debt service with required annual principal and interest payments. A 1.25x ratio means $1.25 of measured cash for each $1 of measured debt service.
Why this matters
Debt service coverage ratio compares measured cash available for debt payments with required debt service. For example, $125,000 of available cash divided by $100,000 of annual payments is 1.25x. Lender definitions and required levels vary.
Work through the details
Count debt service
Include existing and proposed principal and interest payments for the period the lender evaluates.
Read the result in context
A ratio alone does not show liquidity, leverage, collateral quality or resilience under lower income.
Preparation checklist
- Confirm the lender’s definition of cash flow
- Include existing and proposed annual debt payments
- Check the period used and any adjustments
- Test the result under realistic assumptions
Questions that can slow a request
Different definitions
Owner compensation, one-time items or property reserves may change measured cash flow.
Optimistic projection
A ratio based only on expected growth can be weaker than historical performance suggests.
How Alliance helps
It is frustrating when a lender calculates coverage differently and the available loan amount suddenly changes. Alliance reconciles your cash flow and debt payments, explains the assumptions, and tests the request against possible lender views. You have a clearer basis for the amount you pursue.
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Educational guidance only. Requirements and calculations depend on the lender, program and transaction; this is not an approval or a lender-specific checklist.
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