What is Debt Service Coverage Ratio (DSCR)?
Nexa Consultancy | Startup & Finance Glossary
The Debt Service Coverage Ratio (DSCR) is a measure of a company's available cash flow to pay its current debt obligations. It is a key ratio used by lenders to assess the creditworthiness of a borrower.
Base Term for Startups: While most early-stage startups don't have significant debt, this ratio becomes critical for more mature startups or those in capital-intensive industries (like manufacturing) that are seeking bank loans or venture debt.
For Businesses: A DSCR of less than 1 indicates that the company has negative cash flow and may not be able to service its debt without drawing on outside sources. Lenders typically require a DSCR of 1.25x or higher.
Base Term Calculation: DSCR = Net Operating Income / Total Debt Service
Base Term Example: A company has a net operating income of ₹25 Lakhs and its total annual debt payments (principal and interest) are ₹20 Lakhs. Its DSCR is 1.25, indicating it has just enough cash flow to satisfy the lender's requirement.