What is a debt service coverage ratio?

A ratio above 1 means income covers the payments, and lenders commonly require a cushion above that. The definitions of income and debt service come from the loan documents, so ratios may not compare directly. The measure is common in real estate and infrastructure, where income is steady enough to support long-term loans.

Say a building earns $5 million a year and owes $4 million in loan payments. Its DSCR is 1.25, and a lender requiring 1.3 would call that a miss.

Lenders use it to size and monitor loans, and falling below the required level can restrict cash or put a borrower in breach.