Can the business you are buying actually pay the loan back?
That is what a debt service coverage ratio measures, and it is the single number an SBA lender cares about most. Take the cash the business throws off in a year. Divide it by the loan payments you owe in that year. The result is your coverage.
Your lender runs that math once, using the seller's numbers, in a good year. This runs it again on the years that actually happen. You do not need to know any of the terminology to use it. Every field explains itself.
How to read a DSCR
- 1.50xThe business earns half again what it owes the bank. Comfortable.
- 1.15xThe floor most SBA lenders want to see before they will approve a deal.
- 1.00xEvery dollar the business earns goes to the bank. Nothing left for a bad month.
- 0.85xThe business cannot make its own payment. You cover the difference yourself.
Debt service coverage ratio, or DSCR
The cash the business has available in a year, divided by the loan payments it owes that year. At 2.00x it earns twice what it owes. At 1.00x it earns exactly what it owes and nothing more. Below 1.00x it cannot pay its own loan. Most SBA lenders will not approve a deal under 1.15x.
DSCR as the deal was sold to you
1.51x$420,000 available ÷ $278,506 owed
$11,791 left over each month
DSCR after the stress you applied
1.51x$420,000 available ÷ $278,506 owed
$11,791 left over each month
This is the lender's view of the deal
Both numbers match because you have not stressed anything yet. Move the sliders on the left, or press one of the preset buttons, to see what the same deal looks like in a year that does not go to plan.
DSCR across a range of outcomes
Rows are how far sales fall. Columns are where your interest rate lands. Every cell holds your add-back assumption constant.
- 1.25x and above, comfortable
- 1.15x to 1.25x, no margin
- 1.00x to 1.15x, under the lender floor
- Below 1.00x, you fund the gap
Where the seller's profit actually goes
The profit figure in the listing and the money that reaches your pocket are two different numbers. This traces one into the other using the assumptions you set.
The PDF is a one page summary of everything you entered and everything it produced, ready to send to your lender or your accountant. The offline copy is a single file that runs this whole calculator in your browser with no internet connection and nothing sent back to us.
How this calculates
Cash available for the loan starts with the adjusted profit figure, then subtracts your salary, your annual equipment spending, the share of add-backs you decided will not hold, and the profit lost on any decline in sales.
The loan payment is the full principal and interest payment at whatever rate you set. Seller notes on full standby are left out, consistent with SBA treatment when the standby runs at least two years. Interest only notes add their interest. Amortizing notes add their full payment.
This is a model, not an underwriting decision. Lenders apply their own add-back policy, global cash flow tests, and covenant definitions. Silicon Valley Accounting Solutions is not a lender and does not provide investment or lending advice. Use this to frame questions for your lender and your accountant, not to replace either.
The add-back slider is where deals go wrong.
Most buyers accept the seller's recast because there is no time to test it before the letter of intent expires. We rebuild the earnings from the source transactions and tell you which add-backs survive, before you sign.