Commercial finance: calculate debt-service coverage
A property can show a positive operating return and still leave little cash after finance payments. Debt-service coverage compares the income available for debt service with the scheduled payments, using definitions agreed with the lender.
Keep the numerator and denominator explicit
For a simple screening calculation, divide annual net operating income by annual debt service. Define which property costs have been deducted, and whether debt service includes principal, interest and other required payments. Lenders can use different definitions and conditions; there is no universal approval threshold in this worksheet.
Use written financing terms for a real decision. A residential mortgage example or an online indicative rate should not be assumed to apply to a commercial property or corporate borrower.
A hypothetical coverage calculation
Assume annual operating income of AED 420,000 after the stated property costs and annual debt payments of AED 300,000. Coverage is 1.40 times, leaving AED 120,000 before investor taxes, exceptional capital works and other excluded items.
| Scenario | Operating income | Debt service | Coverage |
|---|---|---|---|
| Base assumptions | AED 420,000 | AED 300,000 | 1.40 |
| Income falls by 15% | AED 357,000 | AED 300,000 | 1.19 |
| Same lower income, higher payments | AED 357,000 | AED 330,000 | 1.08 |
These figures are mathematical illustrations, not lending offers or return forecasts. A ratio above one in an annual calculation does not prove that every monthly payment will be funded on time.
Check timing and exceptional payments
Lay out rent receipts against the actual repayment schedule. Consider vacancy, rent-free periods, major works and any large final payment. Identify whether your borrowing rate or repayment amount can change and which event would trigger a reassessment by the lender.
Ask the lender about valuation basis, loan term, security, covenants, fees, early repayment and any refinancing assumption. Record confirmed terms separately from items still being discussed.
For a purchase from AED 5 million, compare the cash-purchase case with the financed case using the same property assumptions. Financing changes the cash commitment and risk allocation; it does not improve the underlying tenant or building. Only proceed to a final funding plan after the lender and your advisers have reviewed the actual transaction.
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Related guide: Planning Cash for a Dubai Property Purchase.
Sources and scope
Official references checked on 29 October 2026: DLD: Service Charge Index. The comparison methods and hypothetical examples are Livrichy planning aids. Official sources do not endorse the examples; confirm current requirements for the actual transaction.