DSCR asks a simple question: does the business generate enough to cover what it has to repay? For business loans above roughly ₹50 lakh, this is often the number that decides the file.
1.50
debt service coverage ratio
- Operating profit
- ₹30,00,000
- Annual repayments
- ₹20,00,000
At 1.5 or above, the business is generating comfortably more than it needs to service its debt. This is what lenders like to see.
Talk to an advisor about thisIndicative only. Final eligibility, interest rate, charges and sanction are decided by the lender after full assessment of your profile and documents. Transakt does not lend and does not approve loans.
The formula
DSCR = net operating income ÷ total debt service
Net operating income is your gross profit less operating expenses — what the business earns before interest and tax. Total debt service is everything you repay on loans in a year: principal plus interest, across all facilities.
What lenders want to see
| DSCR | How it is read |
|---|---|
| 1.5 and above | Strong. The business generates comfortably more than it needs to service its debt. |
| 1.25 – 1.5 | Generally acceptable, though the loan may be sized conservatively. |
| 1.0 – 1.25 | Tight. Expect questions, a smaller amount, or a longer tenure to bring the repayment down. |
| Below 1.0 | The business does not currently generate enough. The amount or the structure has to change. |
A worked example
Annual operating profit ₹30,00,000. Existing loans requiring ₹12,00,000 a year in principal and interest, and a proposed new loan requiring ₹8,00,000 a year. Total debt service becomes ₹20,00,000.
DSCR = 30 ÷ 20 = 1.5. That is comfortable, and the file is likely to be viewed well on this measure.
If the proposed loan instead required ₹16,00,000 a year, total debt service becomes ₹28,00,000 and DSCR falls to 1.07 — the same business, the same profit, but a very different conversation.
How to improve it
- Ask for a longer tenure. It reduces annual debt service directly, which is the fastest lever.
- Borrow less, or stage the borrowing across two facilities.
- Clear or refinance an expensive existing loan before applying.
- Present the profit properly. Many small businesses understate profit for tax reasons and are then surprised when a lender takes those numbers literally. This is a real and common tension, and it is worth planning two or three years ahead of a large borrowing.
Is DSCR used for every business loan?
Not always. For smaller unsecured loans lenders often work from turnover multiples and bank statement analysis. DSCR comes into its own on larger, structured and secured facilities where the lender is underwriting the business rather than the profile.
Should I use profit before or after depreciation?
Practice varies, and some lenders add depreciation back because it is not a cash outflow. If you are close to a threshold, ask your advisor which basis the specific lender uses — it can change the answer materially.
What if my DSCR is below 1?
Then the proposal as structured does not work, and the useful response is to change the structure rather than to apply anyway. A longer tenure, a smaller amount, or a secured facility at a lower rate all move the number.