DSCR Classification Rules
Lender-standard guidelines for categorizing business expenses correctly.
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Classification Rubric
Use this decision order so the model stays consistent and avoids double counting.
- 1.If the item is sales income, classify as Revenue
- 2.If the item is a direct cost to produce or buy what is sold, classify as Cost of Goods Sold
- 3.If the item is employee or contractor compensation, classify as Payroll
- 4.If the item is occupancy lease expense for business space, classify as Rent
- 5.If the item is a normal recurring operating cost not above, classify as Other Operating Expenses
- 6.If the item is principal, interest, depreciation, amortization, owner draw/distribution, personal expense, or income tax, Exclude/Review
Always Include in Other Operating Expenses
These are ordinary operating costs commonly separate from payroll and rent.
✓Utilities, internet, phone
✓Insurance
✓Advertising and marketing
✓Software and SaaS subscriptions
✓Office supplies and cleaning
✓Repairs and maintenance
✓Professional fees (bookkeeping, legal)
✓Bank and merchant processing fees
Never Include in Other Operating Expenses
These distort DSCR or belong elsewhere in the form.
✗Loan principal and interest
✗Depreciation and amortization
✗Owner draws or distributions
✗Personal expenses
✗Income taxes
✗One-time or unusual expenses
Classification Examples
| Expense Item | Category |
|---|---|
| Electricity bill for shop | Other Operating Expenses |
| Facebook ads | Other Operating Expenses |
| QuickBooks subscription | Other Operating Expenses |
| Staff wages | Payroll |
| Warehouse lease | Rent |
| Inventory bought for resale | COGS |
| Loan interest payment | Exclude/Review |
| Depreciation expense | Exclude/Review |
| Owner personal auto lease | Exclude/Review |
| One-time lawsuit settlement | Exclude/Review |
Key Takeaway
Put an item in Other Operating Expenses only if it is an ordinary, recurring business operating cost that is not already COGS, Payroll, or Rent. Do not put loan payments, interest, depreciation, amortization, owner draws, personal expenses, or income taxes into Other Operating Expenses. When uncertain, talk to your accountant.