What is DSCR?
Your Debt Service Coverage Ratio (DSCR) shows lenders how comfortably your business can meet debt obligations. It's one of the most important factors in loan approval.
Formula:
DSCR = Net Operating Income ÷ Total Debt Payments
Example:
- NOI = $240,000
- Debt payments = $180,000
- DSCR = 1.33
This means you generate 1.33 times the amount needed to cover your debts.
Why Lenders Care About DSCR
- Above 1.25: Safe, strong candidate.
- 1.0–1.25: Risky, may still be approved with tighter terms.
- Below 1.0: Typically denied, since income isn't enough to cover debts.
Why DSCR Impacts Approval & Terms
- High DSCR = better rates, bigger loan approvals.
- Low DSCR = stricter terms or denial.
- Lenders use it to measure risk.
Industry Benchmarks in Canada
- Retail & Restaurants: Banks often want DSCR 1.35+
- Manufacturing: 1.25+
- Transport & Logistics: 1.2+
- Professional Services: Sometimes acceptable at 1.15+
How to Improve DSCR Before Applying
- Increase Revenue: Upsell services, launch promotions.
- Cut Costs: Eliminate inefficiencies.
- Refinance Debt: Swap high-interest loans for lower rates.
- Pay Down Loans: Free up monthly obligations.
For more flexible funding options, see our blog on alternative financing for SMEs.
Real-World Example
A logistics company in Alberta had DSCR of 0.9 due to old truck loans. By refinancing with Nexus Finance's help and securing new contracts, they raised DSCR to 1.4 and were approved for a $250,000 fleet expansion loan.
Checklist: Preparing Your DSCR for Loan Approval
- Calculate your DSCR in advance.
- Review industry benchmarks.
- Make improvements to NOI or debt load.
- Update financial statements.
- Present a repayment plan that instills lender confidence.
FAQs About DSCR
Do startups use DSCR?
No, it's mainly for established businesses.
What's a safe DSCR in Canada?
Most lenders want at least 1.25.
Can I get a loan with DSCR under 1.0?
Unlikely, unless using alternative lenders.
Does DSCR vary by industry?
Yes — service industries may accept lower ratios.
Can Nexus Finance help if mine is low?
Yes — we work with flexible lenders.
Is DSCR the only factor?
No, lenders also consider credit, collateral, and growth potential.
How Nexus Finance Can Help
At Nexus Finance, we not only calculate your DSCR but also help you improve it before applying. That way, you're more likely to get approved — and on better terms.
Ready to check your DSCR? Get a free assessment.
Ready to Get Started?
Let us help you calculate and improve your DSCR for better loan approval odds.
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