One of the most important numbers a lender evaluates is your Debt Service Coverage Ratio (DSCR).
Simply put, DSCR answers one question:
“Does this campground generate enough cash flow to comfortably make the loan payments?”
If the answer is no… the bank probably won’t approve the loan.
The Formula
DSCR = Net Operating Income (NOI) ÷ Annual Loan Payments
Example
Annual NOI: $150,000
Annual Loan Payments: $120,000
DSCR = 1.25
This means the campground generates 25% more cash flow than required to make its annual loan payments. That extra cushion helps protect both you and the lender.
What Most Lenders Want
Every lender has different underwriting standards, but many commercial lenders typically look for:
- DSCR of approximately 1.25 or higher
- Clean Profit & Loss Statements
- Trailing 12-month financials
- Two to three years of operating history
- Strong credit history
- Personal Financial Statement
- Approximately 30% available for down payment, reserves, and closing costs
- Adequate working capital after closing
What Many Buyers Misunderstand
A campground may show excellent cash flow… and still not qualify for financing.
Why? Because the purchase price may simply be too high.
As the purchase price increases:
- ↑ Loan amount increases
- ↑ Annual loan payments increase
- ↓ DSCR decreases
Eventually, the campground no longer produces enough cash flow to satisfy the lender.
Think Like a Banker
Banks are not buying the campground. They are evaluating risk.
They ask questions like:
- Will this business consistently make its loan payments?
- Does the buyer have enough reserves?
- Can the campground survive slower seasons?
- Is there enough cash flow left after paying the mortgage?
Lesson Takeaway
Strong buyers don’t just ask: “Can I get approved?”
They ask: “Will this campground comfortably support the debt?”
Remember: Banks lend on cash flow—not emotion, excitement, or potential.
“The numbers have to work before the dream can.”
