Can the business cover the loan payments?
Actual Debt Service Coverage Ratio (DSCR) shows whether annual operating earnings cover the proposed annual debt payments.
Business acquisition
Calculation
DSCR means debt service coverage ratio.
| Input | Value |
|---|---|
| Annual operating income | $150,000 |
| Annual debt service | $120,000 |
- Formula
- $150,000 / $120,000
- Result
- Actual DSCR is 1.25x.
- What it means
- Annual operating income provides $1.25 for each $1.00 of annual debt payment.
Common DSCR mistakes
Actual DSCR is neither profit nor lender approval. Required DSCR is the buyer's entered target; Actual DSCR is the calculated result. With no debt, Actual DSCR is not applicable rather than zero, infinity, or an automatic pass.