Midwest CPA Logo
Book A Call

DSCR Calculator And Guide For Acquisition Entrepreneurs


One of the primary financing options for Entrepreneurship through Acquisition (ETA) is a Small Business Administration (SBA) loan, which is tailored to meet the specific debt needs of small businesses. As your business acquisition specialist, we at Midwest CPA have simplified what the Debt-Service Coverage Ratio (DSCR) is and how it is used when applying for your SBA loan. We have included a DSCR Calculator to help you quickly calculator the DSCR for your specific deal.

DSCR Calculator

What Is Debt-Service Coverage Ratio (DSCR)?

A Debt-Service Coverage Ratio (DSCR) checks a business’s ability to meet its debt obligations utilizing its net operating income. A DSCR calculator functions as a litmus test for a business’s financial health and its ability to service loans effectively. 

DSCR Calculator With Chart

DSCR Calculator With Chart

Enter your financial information to calculate your Debt-Service Coverage Ratio (DSCR) and see how it compares to standard benchmarks.

Debt Service Coverage Ratio (DSCR)
A DSCR greater than 1.25 is usually required by the SBA.

How The DSCR Calculator Works

DSCR is calculated as follows:

DSCR = Net Operating Income (NOI) ÷ Total Debt Service (TDS).

Net Operating Income represents the income generated by the business after deducting all operating expenses, while Total Debt Service encompasses the sum of all debt-related payments, including principal and interest for the same period. 

For example, if a business has an NOI of $100,000 and a TDS of $80,000, the DSCR calculation would be: DSCR = $100,000 ÷ $80,000, resulting in a DSCR of 1.25x. This value indicates that the business generates 1.25 times the income needed to cover its debt obligations.

What Is An SBA 7(a) Loan?

An SBA 7(a) loan is a financial instrument designed to help small businesses in their journey for growth and expansion. These loans are tailored to assist in various aspects of small business development.

The key advantages of an SBA 7(a) loan to Acquisition Entrepreneurs are lower down payments, extended repayment terms, and competitive interest rates. These features offer investors affordable alternatives to conventional financing for accessing capital.

DSCR Requirements For SBA Loans

In the context of SBA 7(a) financing, a lender will typically require a preferred DSCR of 1.25x or higher. This means that businesses are ideally expected to generate their Net Operating Income (NOI) at least 1.25 times greater than the figure of their Total Debt Service to meet their debt obligations. That being said a DSCR above 1.5 is preferred.

Being aware of the DSCR calculation can help you quickly analyze if a deal will meet SBA requirements.  

DSCR vs. Other Financial Metrics

DSCR Calculation measures the ability of a business to meet debt obligations from net operating income, and differs from other financial metrics:

  1. DSCR vs. Debt-to-Income (DTI) –  DTI  provides more information about personal income, making DSCR focused on a company’s financial stability. 
  2. DSCR vs. Gross profit margin (GPM) – GPM evaluates a business’s profitability by gauging income relative to cost of goods sold, whilst DSCR focuses on the business’s cash abilities to meet ongoing debt obligations, 
  3. DSCR vs. Seller’s Discretionary Earnings (SDE) – SDE helps determine a business’s true cash flow potential, whilst DSCR looks at a business’s true ability to meet debts with the current cash flow amounts. Check out our blog on seller’s discretionary earnings.
  4. DSCR vs. Gearing Ratio – Gearing ratios assess a business’s level of debt in relation to equity, whereas DSCR takes a close examination of a business’s overall income inclusive of equity, in order to service debt repayments.

Understanding how the DSCR calculator works can help you differentiate it from other metrics.

How Midwest CPA Can Help You

The DSCR Calculator serves as a gauge of your business’s financial resilience in meeting debt obligations. At Midwest CPA we offer our clients tailored DSCR calculations, as well as provide guidance into SBA loans for ETA initiatives.

Book a free consultation with Chris at Midwest CPA today for further advice.

Have a professional do it for you

While we’ve got you here, why not take a look at our other services.


Can I use the DSCR calculator for any business type?

Yes, the DSCR can be used for any business type as it is a universal measure of a company’s ability to pay its debts with its operating income.

What are the benefits of using the DSCR calculator?

Some key benefits of using a DSCR calculator include:

  • Quick assessment of a business’s financial health.
  • Determination of loan eligibility and borrowing capacity.
  • Aid in financial planning and debt management.
  • Insight into the sustainability of current debt levels.
  • Facilitation of discussions with lenders and investors.

What Is A “Good” DSCR?

A “good” DSCR typically resides within the range of 1.25x or higher. Lenders view this as a strong indicator of a business’s ability to meet debt obligations comfortably.

What if my DSCR is low?

DSCR holds utmost importance for lenders as it serves as a litmus test for a business’s capacity to meet its debt obligations. A favorable DSCR instills confidence in lenders regarding loan repayment. Understanding how the DSCR calculator works and its results can also assist you in the loan application process.

Why is DSCR important for SBA loan approval?

In real estate, a lender will typically require a DSCR of at least 1. While an SBA lender will typically require a DSCR of at least 1.25. These ratios will vary from bank to bank.

How can my business improve its DSCR?

Improving DSCR necessitates ameliorating your business’s financial performance. Strategies may encompass augmenting revenue, reducing expenditures, or refinancing existing debt to boost the ratio.


The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting, or investment advice. You should consult a qualified legal or tax professional regarding your specific situation.

Scroll to Top