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GLOSSARYTERMS AS A CREDIT DESK USES THEM

Debt service cover ratio (DSCR)

What is the debt service cover ratio, and how does a lender actually read it?

ONE OF 80 TERMS · FREE · NO SIGNUP

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED

// THE SHORT ANSWER

Debt service cover is the earnings available for debt service divided by the scheduled principal and interest for the period — the central serviceability test on term lending, and usually its lead covenant. The reading discipline matters more than the number: cover is assessed against the bad year, not the average one, because a multi-year loan lives through whole cycles and the average year repays nothing if the worst year defaults. There is no universal minimum — the cover a lender wants scales with the volatility of the earnings providing it, which is why a stable utility and a project builder are read to different standards.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.

// WHAT IT IS NOT

Not interchangeable with interest cover: DSCR includes scheduled principal and is therefore the harder test on any amortising loan.

// WORKED IN

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