What is debt service coverage ratio (DSCR)?

The debt service coverage ratio measures whether a business or investment property produces sufficient income to meet its debt obligations. Lenders calculate DSCR by dividing the property or business's net operating income by its total annual debt service (mortgage payments, loan repayments, and other debt commitments).

A DSCR above 1.0 means the income covers the debt payments with money left over. A DSCR of 1.25, for example, indicates the property generates 25% more income than required to service the debt. Most lenders on the Gold Coast require a minimum DSCR of 1.25 to 1.5 for investment properties or commercial loans, though requirements vary. A ratio below 1.0 signals the business cannot cover its debt from current income, which typically results in loan denial or higher interest rates.

DSCR matters because it directly influences lending decisions. Mortgage brokers and lenders use it to assess risk and determine loan eligibility, interest rates, and loan amounts. For buyers and investors, understanding DSCR helps identify whether a property purchase or business venture is financially sustainable. Speaking with commercial finance providers ensures you understand how DSCR will affect your borrowing capacity and loan terms.