Debt service coverage calculator

What the ratio means

Debt service coverage compares what a business earns that is available to pay its debts, over a year, with what those debts cost over the same year. A ratio of 1.00x means every dollar earned goes to debt payments. Above 1.00x leaves a cushion; below it, the business cannot cover its payments from what it earns.

Lenders use it to judge whether a business can repay; the SBA lists ability to repay among the general standards for its 504 loans. Each lender sets its own minimum and its own way of counting income, so ask the lender which figures it uses.

The worked example

A business earns $60,000 a year before debt payments and already pays $12,000 a year on existing debt. That is 5.00x coverage.

It applies for $50,000 at 10.0% for 10 years. The payment is $660.76 a month, so yearly debt payments rise to $19,929.12 and coverage falls to 3.01x, leaving $40,070.88 a year after every payment.

What to enter

• Yearly income before debt payments. Net operating income: revenue minus operating costs, before loan payments. Lenders often start from tax returns; use the figure your lender asks for.
• Existing yearly debt payments. Everything the business already pays on loans, equipment financing and lines of credit, for a year.
• The new loan. The amount, the rate and the term in months.

Raising the ratio

Earn more, owe less, or stretch the term so each payment is smaller (at more total interest). A smaller first loan, such as an SBA microloan, is another route.

The calculator assumes a fixed rate and level monthly payments, rounds the payment up to the cent, and counts no fees. It runs in your browser; nothing you type is sent or saved.