A measure of cash flow available to cover debt payments, typically cash flow divided by debt service.
For example, a business generates $180,000 in annual cash flow and has $120,000 in annual debt service obligations, giving it a DSCR of 1.50. Most lenders require a DSCR of at least 1.20 to 1.25, meaning this business has a comfortable buffer above the minimum threshold.
Why it matters: Lenders use this critical metric to determine a business's capacity to take on new debt; a ratio below 1.0 indicates insufficient cash flow to cover debt obligations.
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