Financial Glossary
Debt Service
Debt service is the total cash required over a given period to repay both the principal and interest on outstanding loans. It is commonly expressed as an annual figure. The debt service coverage ratio (DSCR) compares net operating income to annual debt service and is a primary metric lenders use to evaluate whether a property or business generates sufficient cash flow to service its loans. A DSCR below 1.0 means the property does not generate enough income to cover its debt obligations.
Problem & Application
For campground, RV park, marina, and multifamily operators with SBA 7(a), SBA 504, or conventional commercial real estate loans, debt service is often the largest fixed cost in the business. Because campground and STR revenue is highly seasonal, a property that easily covers its debt service in peak months may fall well short in the off-season, requiring owners to hold adequate reserves or draw on working capital lines. Lenders typically require a minimum DSCR as a covenant, and falling below it -- even temporarily -- can trigger technical default or restrict distributions. Modeling monthly debt service against projected revenue by season is a basic discipline that many operators skip until a cash flow crisis forces the conversation.
In Short
Debt service is non-negotiable: it must be paid regardless of occupancy, revenue, or market conditions. Building it into every financial model from the start is how operators avoid being surprised by a coverage shortfall at the worst possible time.