Interest Coverage Ratio Calculator

The formula

Interest Coverage Ratio measures how many times the property's net income covers its annual interest cost:

ICR = Net Operating Income ÷ Annual Interest Expense

NOI = Gross rent × (1 − vacancy %) − non-recoverable operating expenses. Annual interest is calculated at the lender's assessment rate (usually 1–2.5% above the offered rate, or a floor of 7–8.5%), not the headline rate you're being quoted.

A 1.50× ICR means the property generates $1.50 of net income for every $1 of interest — a 50% buffer for vacancy, rate rises, or capex. Below 1.25×, most commercial lenders will decline. Above 1.50×, the deal is comfortably serviced and attracts sharper pricing.

Practical scenarios

Suburban office, single tenant, lease doc

$280k gross rent, 5% vacancy allowance, $28k non-recoverable opex → NOI $238k. At a $2.8M loan at 6.75% assessment rate, annual interest is $189k. ICR = 1.26× — just inside policy for a full doc lender, below the 1.50× lease doc threshold. The borrower would either reduce the loan to $2.36M (to hit 1.50× on lease doc) or switch to a full doc structure where additional borrower income makes up the gap.

CBD retail, dual tenancy, refinance

$410k gross rent across two tenants, 3% vacancy, $35k opex → NOI $363k. At a $4.5M refinance loan at 7.0% assessment, annual interest is $315k. ICR = 1.15× — below policy. Refinance fails unless: rent uplift can be evidenced, additional security is offered, or loan size is reduced to ~$4.0M (which would push ICR to 1.30×).

Industrial unit, vacant possession, full doc

Property is vacant at settlement with $180k market rent assessed. The lender applies a "shadow ICR" at the market rent assumption, but requires the borrower's standalone serviceability to cover interest until a lease is in place. ICR on shadow rent at $2.0M loan / 6.75% = 1.33×. Bridge serviceability from borrower income gets the deal funded; permanent lease tenanting cleans up the covenant at first review.

Typical lender policy

Major banks: 1.40–1.50× ICR minimum on lease doc; 1.25× on full doc where borrower income covers shortfall. Second-tier banks: 1.30–1.40× lease doc; sometimes 1.15× full doc. Non-bank lenders: 1.15–1.25× on lease doc, with higher rates compensating for tighter cover. Private credit: 1.00–1.15× acceptable for short-term transitional facilities, often paired with an exit covenant requiring refinance or sale by a specific date.

Assessment rate is the leverage. A deal failing ICR at the bank's 8.5% floor may clear at a non-bank's 7.5% floor; the offered rate is higher, but the deal funds. Sometimes the right answer is bank funding at a lower LVR; sometimes it's non-bank at full LVR. We model both before recommending.

Related products

• Lease Doc Loans → — ICR is everything; the lease is the application
• Full Doc Commercial Loans → — borrower income supports thin-ICR deals
• Low Doc Loans → — alt-doc servicing where financials are limited
• Commercial Refinance → — reduce rate to lift ICR before review date