DSCR, Debt Service Coverage Ratio, measures whether a property's income is sufficient to cover its debt obligations. The calculation: net operating income (NOI) divided by total debt service (principal and interest) over the same period.
A DSCR of 1.0× means the property's income exactly covers its debt service, zero margin. A DSCR of 1.25× means income is 25% above debt service. Commercial lenders typically require minimum DSCRs of 1.20-1.35× for stabilised investment property files; higher for value-add or non-stabilised security where income could volatilise.
DSCR is the primary commercial credit metric, more important than LVR for income-producing property because it measures whether the loan can self-fund through the term. A 60% LVR commercial loan with a 1.05× DSCR is a worse credit position than a 70% LVR loan with a 1.40× DSCR.
For Archer CommercialX files, DSCR is calculated on documented in-place income, not pro-forma, vacancies, leases nearing expiry and tenant covenant risk all flow into the calculation. The credit team underwrites DSCR forward over the loan term, not just at submission.