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FundingForBusinesses

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Debt service coverage ratio calculator

Debt service coverage ratio is adjusted cash flow divided by total debt service. Most SBA and bank underwriters want to see at least 1.25×. Running it yourself, with honest add-backs, tells you whether a deal is financeable before you spend three months finding out.

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Your numbers

Added back - it is an accounting charge, not cash out the door.

Added back, then counted again below as debt service.

Added back as discretionary.

Subtracted. Lenders will not let you underpay yourself to make a deal work.

Twelve monthly payments on the loan you are considering.

Debt service coverage ratio

2.58×

Comfortably above the 1.25× most lenders look for.

Adjusted cash flow

$191,000

Total debt service

$74,000

Annual headroom

$117,000

Max service at 1.25×

$152,800

What lenders would typically allow

DSCR is the single number most SBA and bank underwriters look at first. Every lender calculates the add-backs slightly differently, and an underwriter will question any discretionary add-back that is not documented in the tax return.

This calculator runs entirely in your browser. Nothing you type is sent to us, stored, or shared. The 1.25× threshold is a widely used convention, not an SBA rule; individual lenders set their own. Results are estimates for comparison only - they are not an offer, a quote, or advice, and your actual terms will be set by a lender.

The add-backs that count and the ones that do not

Depreciation and amortisation are added back because they are accounting charges, not cash. Interest already expensed is added back because it is counted separately as debt service. Owner compensation and documented personal expenses run through the business are added back as discretionary.

What is then subtracted is a market salary for whoever will actually operate the business. Underwriters do this consistently and it catches buyers by surprise: you cannot make a deal work by promising to pay yourself nothing.

Why 1.25× and not 1.0×

At 1.0× the business covers its debt with nothing left for a bad quarter, a rate rise, or a slow customer. The cushion above 1.0 is the lender's margin for the fact that projections are wrong. It is a convention rather than a rule, and individual lenders set their own threshold.

Questions

What DSCR do SBA lenders require?
The SBA does not mandate a figure. Lenders commonly apply 1.15× to 1.25×, and many want the higher end for an acquisition where the buyer is new to the industry.
Can I count add-backs the seller claims but cannot document?
No underwriter will. If a discretionary expense is not visible on the tax return or a clean set of books, it does not exist for financing purposes - which is why seller-claimed add-backs are the most common source of a deal repricing at underwriting.

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