Understanding Debt Service Coverage Ratio (DSCR) in Aircraft Loans

When you apply for a business aircraft loan, lenders look beyond your personal credit score. They need to assess your business's ability to generate enough income to cover its debt obligations. The primary tool for this is the Debt Service Coverage Ratio (DSCR).

What is DSCR and How is it Calculated?

DSCR is a simple formula that measures a company's available cash flow against its total debt payments. The formula is:

DSCR = Net Operating Income / Total Debt Service

• Net Operating Income (NOI): Your company's revenue minus its operating expenses (excluding taxes and interest payments).
• Total Debt Service: The sum of all loan principal and interest payments over a given period.

Why Lenders Use DSCR

DSCR gives a lender a clear snapshot of a company's financial health and its capacity to take on new debt. A ratio of 1.0x means the company has exactly enough income to cover its debts. Anything less than 1.0x means it has negative cash flow. Lenders need to see a cushion.

What is a Good DSCR?

Most lenders require a DSCR of 1.25x or higher. This means that the business generates 25% more income than is needed to cover all its debt payments. A higher DSCR indicates lower risk and can lead to more favorable loan terms.