Understanding Your Debt Service Ratio
One ratio tells a lender whether your church can comfortably carry a loan. Here’s how to read it the way they do.
The coverage question
Every lender is really asking one thing: if we give you this loan, can you repay it without strain? The Debt Service Ratio (DSR, sometimes DSCR) answers it with a single number. Divide your annual Church Cash Flow by your annual loan payments. The result is your coverage.
Reading the number
A DSR of 1.21 means the church generates an extra 21 cents for every dollar of loan payments due. That cushion, in theory, flows toward reserves. A ratio of 1.00 means you exactly break even — no margin for a slow month. Below 1.00 means operations don’t cover the payment on their own.
- 1.25× and up — healthy. Most lenders are comfortable here.
- 1.15–1.25× — workable, but expect questions and a closer look.
- 1.00–1.15× — tight. Cushion is thin; a soft season could hurt.
- Below 1.00× — operations don’t cover the payment; lenders will hesitate.
A caution about net income
Negative net income does not automatically mean a negative ratio. Because cash flow adds back non-cash and one-time items, a church showing an accounting loss can still post solid coverage. That’s exactly why you compute cash flow first, then the ratio — never judge borrowing capacity from the bottom line alone.