What is DSCR, and why does it decide larger business loans?

Updated September 2026 1 min read

The formula

DSCR = net operating income ÷ total debt service

Net operating income is gross profit less operating expenses — what the business earns before interest and tax. Total debt service is principal plus interest across all loans, for a year.

A DSCR of 1.0 means every rupee of operating profit goes to servicing debt, leaving nothing for tax, reinvestment or a bad month. That is why lenders want a margin above it.

A worked example

Operating profit ₹30,00,000 a year. Existing loans need ₹12,00,000 a year. A proposed new loan needs ₹8,00,000 a year.

Total debt service ₹20,00,000. DSCR = 1.5. Comfortable.

Ask for twice as much and debt service rises to ₹28,00,000. DSCR falls to 1.07. Same business, same profit — but now the lender is looking at a file with almost no cushion.

Where FOIR ends and DSCR begins

FOIR is a personal-income test used for salaried borrowers and smaller business loans. DSCR is a business test, used where the lender is underwriting the enterprise rather than the individual — typically larger facilities, secured lending, and anything structured.

If you are borrowing above roughly ₹50 lakh for a business, expect DSCR to be part of the conversation.

How to move the number

• Ask for a longer tenure. It reduces annual debt service directly and is the fastest lever available.
• Borrow less, or in two stages.
• Refinance an expensive existing loan before applying — it reduces the denominator.
• Present profit accurately. Many small businesses minimise declared profit for tax reasons and are then surprised when a lender reads those numbers literally. If a large borrowing is two or three years away, this is worth planning for now.

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