Debt Service Coverage Ratio (DSCR) Calculator for Business Buyers
What is DSCR and Why is it Important?
The Debt Service Coverage Ratio (DSCR) is a key financial metric used by lenders to evaluate a borrower's ability to repay debt. If you're considering purchasing a business, this ratio helps determine whether the business generates enough income to cover its debt obligations. A DSCR of 1.5 or higher is generally preferred by our lenders, meaning the business earns 1.5 times the amount needed to cover loan payments.
Use this DSCR Calculator to estimate your ability to secure financing and assess the financial viability of your business acquisition.
How to Use the DSCR Calculator
Follow these steps to accurately calculate the Debt Service Coverage Ratio for your business purchase:
1. Enter the Purchase Price
- This is the total cost of acquiring the business.
- The loan amount will be calculated based on the purchase price minus your equity injection.
2. Set the Equity Injection (% Down)
- This represents the down payment you’ll make on the purchase.
- Conventional lenders typically require 20% down, which is pre-filled for convenience.
- You can adjust this percentage based on your available funds.
3. Input the Net Operating Income (NOI)
NOI = Revenue - Operating Expenses (before interest and taxes).
- This represents the business’s annual income before debt payments.
4. Enter the Loan Interest Rate
- Input the expected annual interest rate (%) for your loan.
- As of right now, prime interest is at 7.25%. We recommend using a prime plus 2% model just to be safe. Even though we will aim to get you prime interest rate on your transaction.
5. Set the Loan Term (Years)
- This is the duration of your loan repayment.
- Common terms for business acquisition loans range from 5 to 10 years.
6. Click ‘Calculate DSCR’
- The tool will compute the Debt Service Coverage Ratio (DSCR).
- You will see a detailed breakdown of the loan amount, debt service, and DSCR formula used.
(DSCR) Calculator
We advise our clients to plan for 20% down.Why Use This Calculator?
✅ Helps you evaluate whether a business is a good investment
✅ Prepares you for lender requirements before applying for financing
✅ Provides a clear breakdown of financial obligations
✅ Saves time by automating the DSCR calculation
By using this tool, you can make informed decisions about purchasing a business and ensure you meet the financial benchmarks required by lenders.
Understanding Your DSCR Results
- DSCR < 1.0 – The business does not generate enough income to cover debt payments, which may make it difficult to secure financing.
- DSCR = 1.0 – The business earns just enough to cover its debt, leaving no margin for unexpected expenses.
- DSCR > 1.25 – The business generates sufficient income to cover loan payments and may qualify for SBA financing.
- DSCR ≥ 1.5 – Most of our lenders require a DSCR of at least 1.5 to approve conventional acquisition loans. This means the business generates 1.5 times the amount needed to cover its debt obligations, providing a strong financial cushion for repayment.