<P> A DSCR of less than 1 would mean a negative cash flow . A DSCR of less than 1, say . 95, would mean that there is only enough net operating income to cover 95% of annual debt payments . For example, in the context of personal finance, this would mean that the borrower would have to delve into his or her personal funds every month to keep the project afloat . Generally, lenders frown on a negative cash flow, but some allow it if the borrower has strong outside income . </P> <P> Typically, most commercial banks require the ratio of 1.15--1.35 times (net operating income or NOI / annual debt service) to ensure cash flow sufficient to cover loan payments is available on an ongoing basis . </P> <P> Let's say Mr. Jones is looking at an investment property with a net operating income of $36,000 and an annual debt service of $30,000 . The debt coverage ratio for this property would be 1.2 and Mr. Jones would know the property generates 20 percent more than is required to pay the annual mortgage payment . </P> <P> The Debt Service Ratio is also typically used to evaluate the quality of a portfolio of mortgages . For example, on June 19, 2008, a popular US rating agency, Standard & Poors, reported that it lowered its credit rating on several classes of pooled commercial mortgage pass - through certificates originally issued by Bank of America . The rating agency stated in a press release that it had lowered the credit ratings of four certificates in the Bank of America Commercial Mortgage Inc. 2005 - 1 series, stating that the downgrades "reflect the credit deterioration of the pool". They further go on to state that this downgrade resulted from the fact that eight specific loans in the pool have a debt service coverage (DSC) below 1.0 x, or below one times . </P>

Which statement best describes the debt service coverage ratio (dscr)