Finance
What is 'debt coverage ratio' (DCR) and why do Idaho commercial lenders use it?
AThe ratio of property value to loan amount
BThe ratio of Net Operating Income to annual debt service, measuring the property's ability to generate enough income to cover loan payments✓ Correct
CThe ratio of equity to total investment
DThe ratio of rental income to property taxes
Explanation
DCR = NOI / Annual Debt Service. A DCR of 1.0 means NOI exactly covers debt service. Idaho commercial lenders typically require a minimum DCR of 1.20-1.25, meaning NOI must be 20-25% more than required loan payments. A higher DCR indicates a safer loan from the lender's perspective.
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