DSCR (Debt Service Coverage Ratio)
CFADS / Annual Debt ServiceDSCR measures how many times annual cash flow can cover the annual loan payments (principal + interest). A DSCR of 1.25x means cash flow is 25% more than the required debt payments.
How it's used in a deal
SBA 7(a) lenders typically require a minimum DSCR of 1.15x to 1.25x. Higher is better. DSCR directly determines how much debt the business can support.
Worked example
Fictional Precision Auto Service, FY 2024. Missing inputs remain unavailable.
DSCR: Not available. Requires supported earnings and two complete working-capital snapshots; DSCR also requires debt service.
Inputs and supported results from our fictional sample deal report — Fictional, incomplete example. No real customer documents, verified source support or independent accountant review are supplied.
Free DSCR Calculator
A quick screen, not an analysis — real deals need normalized earnings, not reported ones.
Annual debt service: $200,857
DSCR 1.00x
Below the modeled 1.25x screening benchmark
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DSCR below 1.0x means the business cannot service the debt. DSCR between 1.0x and 1.15x may not meet SBA minimum requirements.
Frequently asked questions
What DSCR do SBA lenders require?
SBA SOP guidance sets 1.15x as the floor, but most lenders underwrite to 1.25x on normalized cash flow. Below 1.15x, expect a lower loan amount, more equity down, a seller note on standby, or a price renegotiation.
How do I improve a deal's DSCR?
Four levers: lower the purchase price, put more equity down, extend the loan term, or move part of the price into a standby seller note. DSCR is the single most useful early screen for whether a deal can be financed at the asking price.
Review DSCR for your acquisition
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Educational content from a decision-support tool — not a CPA audit, review, or assurance engagement, and not tax, legal, or investment advice.