ICR, Interest Cover Ratio, is income divided by interest expense over the same period. Unlike DSCR, ICR ignores principal repayment and looks only at whether the borrower can service the interest portion of the loan.
ICR is the relevant metric on interest-only loans, which is most private credit. A 1.5× ICR means the borrower generates income 50% above their interest obligation. Private credit lenders typically require ICRs of 1.25-1.75× depending on income volatility and security type.
The relationship between ICR and DSCR: on a P&I loan, DSCR will always be lower than ICR (because debt service includes principal). On an interest-only loan, ICR equals DSCR.
ICR is preferred over DSCR on bridging and short-term files where principal repayment isn't expected from cashflow, the loan is repaid from the exit event (sale, refinance) and only interest needs to be serviced (or, more commonly, capitalised) through the term.