DSCR Too Low for Your Commercial Refinance: Understanding Your Options
Debt Service Coverage Ratio — DSCR — is the single most important underwriting metric in commercial lending. It measures whether your property generates enough income to cover the loan payments. A 1.25x DSCR means your net operating income is 25% higher than your annual debt service. Most banks require 1.20x to 1.25x at a minimum.
If your DSCR comes in below that threshold, conventional lenders will decline — often without much explanation. But a low DSCR doesn’t automatically mean you’re stuck. It means you need to either improve the number, restructure the financing, or find lenders who underwrite differently.
Why Your DSCR Might Be Coming in Low
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Vacancy or below-market rents. If units are vacant, leases recently expired, or rents are below current market rates, your NOI is understated relative to the property’s actual potential. Lenders who underwrite to “as-stabilized” value — what the property will produce when fully leased at market rents — can lend against a higher income figure.
Rising interest rates. A loan that worked at 4% may not work at 7%. Higher rates mean higher debt service, which compresses DSCR even if your income hasn’t changed. Extending your amortization period (25 to 30 years, or interest-only) reduces monthly payments and improves DSCR.
Increased operating expenses. Insurance costs and property taxes have risen significantly in many markets. If expenses have grown faster than rents, NOI shrinks and DSCR falls. Some lenders will examine expense trends and underwrite to normalized operating costs.
Management or lease-up issues. A transitional property — one that’s been mismanaged, recently renovated, or in the process of leasing up — will have depressed DSCR today but strong future income. Bridge lenders are specifically designed for this scenario.
Four Ways to Address a Low DSCR
1. Reduce the loan amount. A lower loan balance means lower debt service, which improves DSCR. If you have equity to work with, bringing cash to closing reduces the loan-to-value and makes the DSCR math work. This isn’t always possible, but it’s the most direct lever.
2. Extend amortization or request interest-only. Stretching from 20-year to 30-year amortization reduces your monthly payment. Some lenders offer interest-only periods — typically 1–3 years — which dramatically lowers debt service during that window. This helps when you need time to stabilize the property and grow NOI.
3. Use a bridge loan while you improve NOI. If your DSCR is low because the property is transitional — lease-up in progress, renovations recently completed, tenant turnover — a bridge loan buys you 12–24 months to stabilize. Once the property is performing, you refinance into permanent financing with DSCR that qualifies.
4. Target lenders with lower DSCR thresholds. Debt funds and private lenders often accept 1.10x or even lower DSCR, especially for stabilized properties in strong markets. Some lenders use global cash flow analysis that includes your other income, not just the subject property’s NOI.
Frequently Asked Questions
What’s the minimum DSCR for a commercial loan?
It depends heavily on the lender type. Banks typically require 1.20–1.25x. Debt funds may accept 1.10–1.15x. Some bridge lenders focus more on LTV than DSCR and will lend on transitional properties with sub-1.0x current DSCR if the “as-stabilized” case is strong.
Can I include other income to improve my DSCR?
Some lenders — particularly SBA and portfolio lenders — use “global” DSCR analysis that includes business income, other rental income, or personal income from the guarantor. This can help when the subject property’s income alone doesn’t meet the threshold.
How is DSCR calculated for commercial loans?
DSCR = Net Operating Income ÷ Annual Debt Service. NOI is your gross rental income minus operating expenses (property taxes, insurance, management, maintenance, reserves) — before mortgage payments. Annual debt service is your total principal and interest payments over 12 months.
Before approaching lenders, check where you stand with our free DSCR calculator for commercial real estate.
How RefiLoop Helps
When DSCR is the issue, matching your deal to the right lender type is everything. RefiLoop submits your deal to our 7,000+ lender network — including bridge lenders and debt funds who underwrite to as-stabilized value and have lower DSCR thresholds than conventional banks. We return 3–5 competing offers within 48 hours.
No upfront fees. No commitment required to see your options. The right lender for a low-DSCR situation exists — you just need to find them efficiently.
Complete guide: Commercial Mortgage Refinancing — The Complete Guide →
Property Types We Finance
RefiLoop sources refinance options across all major commercial property types. Find lender options specific to your asset class:
- Multifamily balloon loan refinance
- Retail strip center refinance lenders
- Industrial property commercial refinance
- Mixed-use building refinance
- Self-storage facility refinance
- Office building commercial refinance
About David Greenbaum
David Greenbaum is a commercial mortgage broker and co-founder of RefiLoop. He specializes in helping commercial property owners refinance maturing loans between $200K and $15M across Texas, Florida, Georgia, North Carolina, Ohio, and other priority markets. With hands-on experience in commercial bridge loans, debt fund financing, and conventional CRE refinancing, David helps borrowers find the right capital source for their situation — not just the easiest one.