DSCR Calculator

DSCR is the ratio of operating cash flow to the annual debt service (the total of principal and interest payments due in a year). It tells the lender how many times your cash flow covers the loan repayment. A DSCR of 2.0 means cash flow is twice the annual instalment; a DSCR of 1.0 means it exactly covers it with no margin. Banks use this single number to decide whether a loan is bankable.

Most lenders look for a DSCR of at least 1.2 to 1.3 on small-business and hospitality loans, meaning operating cash flow should exceed the annual repayment by 20-30%. A higher ratio gives the bank a safety cushion if takings dip. Below roughly 1.2 the loan is often declined or repriced, because there is too little headroom to absorb a bad season.

The calculator uses the standard amortising-loan formula: instalment = C x i / (1 - (1 + i)^-n), where C is the capital borrowed, i is the periodic interest rate and n is the number of periods. For a 200,000 euro loan at 6% over 5 years the annual instalment is about 47,480 euros. The instalment is then compared against operating cash flow to produce the DSCR.

Working backwards, the maximum sustainable annual debt service equals operating cash flow divided by the target DSCR. With 100,000 euros of cash flow and a target DSCR of 1.3, the cash flow supports up to about 76,900 euros of annual repayment, which at 6% over 5 years corresponds to roughly 324,000 euros of capital. The calculator does this reverse computation so you know your borrowing ceiling before you apply.

Use a sustainable operating cash flow figure, typically EBITDA, since it reflects the cash the business generates before financing. Avoid using a single exceptional year. Some lenders adjust for owner's compensation or maintenance capital expenditure, so check which definition your bank applies and run the calculator with that number.