DSCR Calculator

Banks' DSCR requirements: Business Loans = 1.25-1.5 minimum (most banks want 1.35+). Home Loans (rental property) = 1.25 minimum. Commercial Property Loans = 1.5-2.0 (stricter). Interpretation: DSCR 1.25 = Income is 25% MORE than debt obligations (₹1.25L income covers ₹1L EMI). DSCR 1.0 = Breakeven (just enough income, NO buffer). DSCR less than 1.0 = REJECTION—income insufficient to cover debt. Example: ₹10L annual debt service (EMI + interest) → Need ₹12.5L+ net operating income for 1.25 DSCR → Loan approval likely. Less than ₹10L income → REJECTION.

Formula: DSCR = Net Operating Income (NOI) / Total Debt Service. Net Operating Income = Revenue − Operating Expenses (BEFORE interest, taxes, depreciation). Total Debt Service = Principal + Interest payments for ALL loans (not just the new loan). Example: Business Revenue ₹50L, Operating Expenses ₹30L → NOI = ₹20L. Existing loan EMI ₹10L/year, seeking new loan with ₹5L/year EMI → Total Debt Service = ₹15L. DSCR = ₹20L / ₹15L = 1.33 → APPROVED (greater than 1.25). Common mistake: Using Profit After Tax (PAT) instead of NOI—banks use NOI because it excludes non-cash charges like depreciation.

YES, high DSCR can offset low credit score (to an extent). Banks' decision matrix: Credit Score 750+ + DSCR 1.25+ = INSTANT APPROVAL, best rates. Credit Score 650-750 + DSCR 1.5+ = APPROVED, slightly higher rates (+0.5-1%). Credit Score less than 650 + DSCR 1.75+ = MAYBE APPROVED (case-by-case, collateral required). Credit Score less than 650 + DSCR less than 1.25 = REJECTION (no exceptions). Real example: Startup with 680 credit score, ₹30L revenue, ₹15L expenses, seeking ₹50L loan (₹8L annual EMI). DSCR = ₹15L / ₹8L = 1.875 → APPROVED despite mediocre credit (strong cash flow de-risks lender). However, interest rate 2-3% higher than prime borrowers.

DSCR (Business/Commercial): Measures BUSINESS cash flow vs debt obligations. Uses Net Operating Income (excludes owner salary). Used for business loans, rental property loans. Debt-to-Income (DTI) (Personal): Measures PERSONAL income vs ALL personal debts (EMI, credit cards). Uses gross salary/income. Used for home loans, personal loans. Example: Business owner earning ₹30L salary + ₹50L business NOI. Seeking home loan (₹15L annual EMI) → DTI = ₹15L / ₹30L = 50% (okay, less than 60% threshold). Seeking business loan (₹20L annual EMI) → DSCR = ₹50L / ₹20L = 2.5 (excellent). Banks check BOTH for business owners—DTI for personal liability, DSCR for business viability.

Strategies: (1) Increase Revenue: Add new customers, raise prices, upsell existing clients → Immediate NOI boost. (2) Cut Operating Costs: Renegotiate vendor contracts, automate processes, reduce waste → Increases NOI without revenue growth. (3) Extend Loan Tenure: ₹50L loan at 10% for 5 years = ₹13.2L annual EMI. Same loan for 7 years = ₹10L annual EMI → DSCR improves 32% with lower annual payment. (4) Pay Off Small Debts: Clear credit card (₹2L/year EMI), personal loan (₹3L/year EMI) → Total debt service drops ₹5L → DSCR improves. (5) Defer New Loan: Wait 6-12 months, grow NOI 20-30%, THEN apply. Example: Current NOI ₹20L, debt ₹18L → DSCR 1.11 (rejected). Cut costs ₹3L → NOI ₹23L → DSCR 1.28 → APPROVED.

DSCR primarily for BUSINESSES and RENTAL PROPERTY investors. Salaried individuals use Debt-to-Income (DTI) ratio for personal loans/home loans. However, DSCR applies to salaried individuals for: (1) Buy-to-Let Home Loans: Buying property to rent out → Bank uses RENTAL INCOME (not salary) to calculate DSCR. Example: ₹80L property, ₹25k/month rent = ₹3L/year income. Loan EMI ₹6L/year → DSCR = ₹3L / ₹6L = 0.5 → REJECTED (rental income insufficient). Need ₹7.5L rent or ₹50L property with ₹4L EMI. (2) Freelancers/Consultants: Banks treat as 'business' → Use annual income (₹20L) vs existing debts (₹12L) → DSCR 1.67 → Good eligibility.

INCLUDE in Operating Expenses (reduce NOI): Raw materials, inventory, employee salaries (NOT owner salary), rent, utilities, marketing, office supplies, software subscriptions, maintenance, shipping, packaging. EXCLUDE from Operating Expenses (do NOT reduce NOI): Interest payments (handled separately in debt service), taxes (income tax, corporate tax), depreciation (non-cash expense), amortization, owner/partner salary draws, capital expenditures (equipment purchase). Example: Revenue ₹50L. Expenses: Salaries ₹15L, Rent ₹5L, Materials ₹10L, Marketing ₹3L, Interest ₹4L, Depreciation ₹2L → NOI = ₹50L − (₹15L + ₹5L + ₹10L + ₹3L) = ₹17L. Do NOT subtract ₹4L interest or ₹2L depreciation.

YES, DSCR can be negative if Net Operating Income is negative (business losing money). Example: Revenue ₹30L, Operating Expenses ₹40L → NOI = −₹10L. Debt Service ₹15L → DSCR = −₹10L / ₹15L = −0.67. Meaning: Business burning ₹10L annually BEFORE paying debt. Bank will 100% REJECT loan (business insolvent). Emergency actions: (1) Immediate cost-cutting (fire employees, close branches), (2) Pivot business model (drop unprofitable products), (3) Inject personal funds to cover losses, (4) Restructure existing debt (extend tenure, reduce EMI). NEVER apply for new loan with negative DSCR—fix profitability FIRST. Exception: Early-stage startups (under 2 years old) with strong projections—some NBFCs lend on projected DSCR (risky, 15-18% interest).