Debt Service Coverage Ratio | How to get a good DSCR value for Bank Loan | DSCR formula
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If you are applying for a term loan for your business, then the DSCR ratio might be the most important value on which the fate of your loan application will depend. In this video, we will see:
0:00 DSCR introduction
0:32 What is DSCR
1:11 DSCR formula
2:24 Good DSCR for Bank Loan
3:10 Software for DSCR working and Project Report
3:30 How to Improve a Low DSCR
8:30 What if DSCR is too High
If you are using Fortrisk Project Report software to make your report, do not worry. Our software will automatically calculate the DSCR ratio for you.
Click below to see how to make a project report with our online software
• Easily Make Project Report for Loan | Mudr...
To make Project Report on our website, visit:
https://fortriskconsulting.com/
What is DSCR Ratio
DSCR Ratio stands for is Debt Service Coverage Ratio. In simple terms, it is a ratio that shows how well you can repay (service) the loan (principal + interest) in the given year. After taking a term loan from a bank, you have to repay it by EMI payments. DSCR checks whether you have earned sufficient profits to make these EMI payments comfortably.
So higher the DSCR, the higher your business is financially sound to repay the loan
What is the formula to calculate DSCR?
The most common DSCR formula used in India is:
Profit After Tax + Depreciation + Interest divided by Total EMI payable during the year + any other interest payable
What is the ideal DSCR value for Banks in India?
In most cases, banks are comfortable with DSCR in the range of 1.3 to 5. Also, the banks pay more importance to the average DSCR of the entire loan period than the year-on-year DSCR because it can take time to set up a business. You may incur losses, but profitability will be good to repay the loan in future years. Thus, for banks, the average DSCR is more important.
DSCR is too low; what to do?
If you are getting a DSCR of less than 1, you are not earning enough to repay the loan, and hence the bank will not be able to sanction your loan as it becomes risky.
Don't worry. With our project report software, you can quickly improve the DSCR value in your report in a few easy steps like:
1. Increase the Loan Duration
2. Increase own capital proportion
3. Revise Sales Projections
Follow these simple steps in our project report software and improve your DSCR value in no time and effort.
Is there something like a very high DSCR value?
Earlier, we said that the higher the DSCR means your business's capacity to pay off the loan is better. So you will say that the higher, the better for DSCR, but that is not the case. A very high DSCR value would mean that your income is high enough & you don't really need a loan.
Generally, the average DSCR value greater than 5 is considered high by Banks, and they may hesitate to sanction your loan.
Don't worry. You can correct a high DSCR value using the same steps discussed above. In other words, in Fortrisk Project Report software, you can
Reduce the Loan Duration period
Increase the Loan proportion vis-à-vis own capital
Scale down the sales projections
So hope we have cleared all your doubts about DSCR. If you still have any questions, please ask us in the comment box below.