Commercial Loan DSCR

The short answer, and why it is not one number

Ask what DSCR you need for a commercial property loan and you will be told 1.5 times, or 1.25 times, usually with more confidence than the number deserves. The honest answer is that there is no regulated minimum in Australia, and the published policy of real lenders sits lower than the figures circulating online.

What decides your deal is not the ratio in isolation. It is which ratio is being measured, on which income, at which interest rate. Get those three right and the number takes care of itself.

APRA does not set a commercial DSCR

This is the part almost nobody says out loud, and it changes how you read every other number on this page.

APRA's Prudential Standard APS 220 requires an interest rate buffer of at least 3.0 per cent when assessing serviceability, but that requirement is written for residential mortgage lending. It is not a commercial property test. For business exposures, Prudential Practice Guide APG 220 states only that authorised deposit taking institutions "will use a range of financial ratios to support their credit risk assessment", with key areas of focus that "might include interest coverage, gearing and leverage, which can be compared to relevant industry benchmarks". It names the ratio types. It sets no threshold.

Source: APRA, Prudential Standard APS 220 Credit Risk Management and APG 220 Credit Risk Management (August 2021), both checked 9 August 2026.

The consequence for a borrower is direct: every DSCR threshold you are quoted is an individual lender's credit appetite, not a rule. Two lenders can read identical financials and reach opposite answers without either being wrong. A commercial decline is very often a policy mismatch rather than a verdict on the business, which is also why the second lender matters more than the second attempt.

What a published lender policy actually says

Rather than quote a market rumour, here is a lender's own published commercial policy, in writing and dated.

• Minimum DSCR of greater than 1.0 times, calculated on combined trading and individual income after tax and shading, over expenses and total commitments including the new loan.
• A buffer of 2.01 per cent applied to all assessed interest rates, with interest only loans assessed on a principal and interest basis over the remaining term.
• Lease doc interest coverage ratio of 1.2 times or better, calculated as net rental income divided by the actual interest payment.

Source: a non-bank lender's commercial rate and product guide, dated 1 August 2026, checked 9 August 2026. The document is issued to accredited brokers and is not ours to republish, so it is described here rather than named. Policy varies between lenders and changes without notice, so treat this as one documented example rather than the market. We will walk you through the specific lender's current position on your own deal.

Commonly quoted ranges of 1.25 to 1.50 times do appear across Australian broker guidance, and some credit teams genuinely work to them. Treat those as indicative market commentary rather than published policy, because that is what they are.

DSCR and ICR are not the same test

This distinction costs people deals, because the two get used interchangeably in conversation and never in credit.

• DSCR measures income against total debt service, meaning principal and interest plus your other commitments. It is the full doc test, applied to trading income.
• ICR measures income against the interest payment alone. It is the lease doc test, applied to rent.

A 1.2 times ICR and a 1.2 times DSCR are not comparable positions. The ICR ignores principal entirely, so the same property can clear one and fail the other. When someone tells you the number you need, the useful next question is which ratio they mean and whether principal is inside it.

The buffer is what fails deals, not the ratio

Here is the mechanism that surprises most first time commercial borrowers. Lenders do not assess your loan at the rate you will pay. They add a buffer, and they assess interest only facilities as though they were principal and interest over the remaining term.

A worked example, using the published buffer above and an assumed rate for illustration only:

• Perth industrial unit at $1.2 million, funded at 70% LVR, so a loan of $840,000.
• At an assumed 7.50 per cent over a 20 year principal and interest term, annual debt service is roughly $81,200.
• Assessed with the 2.01 per cent buffer applied, the same facility costs roughly $94,000 a year.
• On net operating income of $102,000, the deal reads at about 1.26 times on the actual rate and about 1.08 times once buffered.

The rate used here is an assumption for the arithmetic, not a quoted or available rate. The point is the gap between the two ratios. That deal clears a greater than 1.0 times policy and fails a 1.25 times policy, on identical numbers, purely because of which rate the calculation runs at. Below the lender's band, the loan does not pass serviceability regardless of how comfortable the rent looks in your own spreadsheet.

What moves your DSCR before you apply

All of these are easier to fix before an application than after a decline, and the cheapest wins are usually on the commitments side rather than the income side.

• Existing commitments. Every facility you already hold is counted, and assessed at a buffered rate too. Short term equipment debt hurts disproportionately because the repayment is compressed into a few years. Retiring or restructuring small facilities often moves the ratio more than a revenue increase would.
• Add backs. Normalised earnings only count if they survive a credit officer's reading. Depreciation and genuinely non recurring costs are usually accepted. Owner lifestyle costs dressed up as add backs are not, and disputing them mid application wastes the goodwill you need later.
• Lease documentation. Rental income counts at full value when the lease is documented, current and assignable. An informal or expiring lease gets shaded or ignored.
• Amortisation and structure. A longer term lowers assessed debt service. Additional security can move the deal into a different risk tier entirely.
• Timing. The most recent reporting year carries the most weight. Applying immediately after a soft year, when a stronger year is about to close, is a self inflicted wound.

How this lands in Perth and WA

Two local factors change the arithmetic here more than they do on the east coast.

Asset liquidity drives the LVR that drives the ratio. Standard industrial stock in established Perth precincts is funded at the top of the range. Specialised assets and properties in single industry towns sit lower, because the lender is asking who else would buy it. A lower LVR means a smaller loan, which means a higher DSCR on the same income, so the deposit and the ratio are the same conversation.

Resources exposure gets read as concentration risk. A tenant or a trading business dependent on one mining or civil contract is assessed differently to one with spread revenue, even where current earnings look stronger. That is a serviceability question as much as a security question, and it is worth addressing in the application rather than waiting to be asked.

If you are buying premises for your own business, the deposit, valuation and GST side is covered in our guide to buying your business premises in WA. For the broader picture on facilities and structure, see commercial finance.

Before you go to a lender

The ratio is not a number you find out at the end. It is one you can calculate at the start, and a deal that does not service at the assessment rate is better known now than after valuation fees and three weeks.

The free business finance check takes about two minutes and comes back with a straight answer from people who sat on the lender's side of the desk.

Related reading: commercial finance for facilities and structure, SMSF commercial property loans if super is part of the plan, and buying your business premises in WA for the deposit and valuation side.

If the deal is a property purchase, our commercial property loan calculator puts the buffered repayment alongside the deposit, WA duty and cash to complete, so you can run the ratio on your own numbers first. And where the property's lease is doing the qualifying rather than your financials, the interest cover version of this test is the one that applies, covered in lease doc commercial loans.

Frequently asked questions

General information only, current at 9 August 2026. It does not take your circumstances into account and it is not credit, tax, legal or accounting advice. Lender policy varies between lenders and changes without notice, and the worked example uses an assumed interest rate for illustration rather than a quoted or available rate. Confirm your position with us and your accountant before you commit.