The debt service coverage ratio (DSCR) tells a lender how many times your cash flow covers your annual loan payments. It is often the first number a credit analyst calculates. Enter your figures below to see your DSCR, how it compares with typical bank minimums and how much room you have for new borrowing.
Estimates only. Lenders use their own methods, rates and fees. Results update as you type; nothing you enter leaves your browser.
DSCR formula
DSCR = cash available for debt service ÷ total debt service
Cash available for debt service is usually EBITDA minus tax paid in cash. Some banks also deduct maintenance capital expenditure or owners' drawings. Total debt service is all principal and interest due in the year on every loan, including the one you are applying for. Lease payments are often included too.
Worked example
A distributor earns EBITDA of $180,000 and pays $20,000 of tax, leaving $160,000 for debt service. Existing loans cost $40,000 a year and the new loan would add $60,000, a total of $100,000. The DSCR is $160,000 ÷ $100,000 = 1.60x. At a 1.25x minimum the business could support up to $128,000 of annual debt payments, so it has $28,000 of headroom.
What is a good DSCR?
- Below 1.00x: cash flow does not cover the payments. The shortfall would have to come from reserves or new capital.
- 1.00x to 1.25x: covered but thin. Approval is possible with strong security, guarantees or a track record, often with tighter covenants.
- 1.25x to 1.50x: meets the common bank minimum for SME term loans.
- Above 1.50x: strong. You are in a better position to negotiate rate, fees and security.
Thresholds vary by lender, sector and country. Property lenders and cyclical industries often ask for more. Minimum DSCR is also a common loan covenant, tested every year after the loan is drawn.
Frequently asked questions
Which profit figure should I use?
Use EBITDA from your latest full-year accounts, or the last 12 months from management accounts. Banks remove one-off income and add back non-cash costs, so use a figure you could defend in a credit review.
How do I improve a low DSCR?
Borrow less, stretch the loan term to lower annual payments, refinance expensive short-term debt, or improve cash profit before applying. The borrowing capacity calculator shows how much you could borrow at your current cash flow.
Is DSCR the same as interest coverage?
No. Interest coverage divides profit by interest only. DSCR includes principal repayments as well, so it is a stricter test and the one banks use for term loans.
Read the full guide: Understanding DSCR. See also the financial ratios banks use.
These figures are estimates for planning. They are not financial advice or an offer of credit. See our disclaimer.