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DSCR & ISCR Calculations

The Debt Service Coverage Ratio (DSCR) and the Interest Service Coverage Ratio (ISCR) are two important financial metrics used by lenders and investors to assess a borrower's ability to repay loans. DSCR measures how comfortably a borrower can cover total debt obligations, including both interest and principal repayments, using available cash flow. A higher DSCR indicates stronger repayment capacity. ISCR, on the other hand, focuses only on the ability to pay interest expenses from earnings before interest and taxes (EBIT). A higher ISCR shows that the borrower generates enough profits to meet interest payments without difficulty. Together, DSCR and ISCR calculations provide a clear picture of a borrower's financial health and loan servicing capability.

Objectives of DSCR & ISCR Calculations

The main objective of DSCR and ISCR calculations is to evaluate whether a borrower has sufficient financial capacity to meet debt obligations on time. DSCR ensures that both interest and principal repayments are covered by operating cash flow, while ISCR ensures interest expenses can be managed easily from earnings. These ratios help lenders minimize risk, allow borrowers to understand their repayment strength, and support better decision-making in loan approvals and financial planning.

Benefits of DSCR & ISCR Calculations

*Assess repayment capacity clearly.	*Highlight cash flow strength.
*Help lenders reduce default risks.	*Show ability to handle future debts.
*Guide borrowers in financial planning.	*Help compare financial performance across businesses.guidance.
*Improve loan approval decisions.	*Support investment and expansion planning.
*Build confidence between borrower and lender.	*Provide transparency in loan evaluations.

Types of Loans Requiring DSCR & ISCR Calculations

DSCR and ISCR calculations are most commonly applied to larger and structured loans, such as business loans, project finance loans, real estate loans, and infrastructure loans. These loans involve significant amounts and longer repayment periods, making it essential to evaluate both cash flow strength and interest coverage capacity. By applying DSCR and ISCR, lenders ensure that borrowers have the financial health to manage debt responsibly, while borrowers gain insights into their repayment ability.

DSCR & ISCR Calculations are not usually required

DSCR and ISCR are not usually required for small or short-term loans like personal, car, education, gold, overdraft, or credit card loans, since lenders rely more on credit score, income, and collateral value.