What DSCR threshold do lenders commonly require for commercial loans?

• A. Greater than 1.60 to 2.00
• B. Greater than 1.20 to 1.40
• C. At least 1.50
• D. Greater than 1.80

Answer: (B)

The main idea is how lenders measure a property's ability to cover its debt service: the debt service coverage ratio, which is net operating income divided by annual debt service. Lenders set a minimum DSCR as a cushion against vacancies, vacancies, and unexpected operating costs. In commercial lending, a common minimum falls in the roughly 1.2 to 1.4 range, meaning the property should generate at least 20% to 40% more income than the debt payments. That’s why this range is the best fit: it reflects typical market standards, offering enough safety without making loans unnecessarily hard to obtain.

For context, a DSCR of 1.25, for example, means NOI is 25% higher than the debt service, which is generally considered a comfortable buffer. If the NOI dropped or debt service rose so DSCR fell below the threshold, the loan wouldn’t pencils out under lender criteria. Higher thresholds, like 1.6 or 1.8, indicate much larger cushions and are usually reserved for higher-risk deals or tighter lending standards, not the standard program.