Skip to content
GLOSSARYTERMS AS A CREDIT DESK USES THEM

Debt service reserve account (DSRA)

What is a debt service reserve account, and how is it funded?

ONE OF 366 TERMS · FREE · NO SIGNUP

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED

// THE SHORT ANSWER

A debt service reserve account is a cash account, charged to the lenders, that holds enough to meet a set number of months of future principal and interest, commonly six, so that a short dip in income does not become a payment default. It is usually funded at the start from the loan or the sponsors' equity, or built up from cash flow, and some agreements accept a bank letter of credit in its place. Lenders draw on it when cash falls short and block distributions until it is refilled; a draw means the project's own cash has already failed to meet a payment.

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

An interest reserve funds a development loan's interest during construction, usually by capitalising it; a DSRA holds cash against principal and interest once the asset is earning.

// WORKED IN

// NEXT TO IT

FACILITIES AND THEIR SHAPE

All 366 terms on one page