What is a common consequence of high debt service coverage ratios?

A high debt service coverage ratio (DSCR) is an indicator of a borrower's ability to meet their debt obligations. Specifically, it measures the cash available to pay current debt obligations relative to the amount of debt service required. When a borrower has a high DSCR, it signals to lenders that the borrower generates sufficient income to cover their debt payments, which in turn reflects a lower risk for the lender.

As a result, lenders are more likely to approve loans for borrowers with higher DSCRs because it demonstrates financial stability and the ability to manage debt responsibly. This increases the likelihood of loan approval rates since lenders typically seek to reduce their risk by lending to those who can comfortably meet their repayment requirements.

Higher interest rates on loans, lower equity positions for borrowers, and increased risks of loan default generally pertain to situations where borrowers struggle to meet their debt obligations, which is the opposite of what a high DSCR indicates. Therefore, a high DSCR typically correlates with more favorable lending conditions, including higher loan approval rates.