Debt Service Coverage Ratio

How debt service coverage ratio works

The numerator and permitted adjustments depend on the lender’s methodology or covenant. Cash available for debt service is divided by scheduled debt service. A ratio above one indicates numerical coverage on that chosen basis, not guaranteed affordability.

Practical UK business example

A business has £120,000 of qualifying annual cash available for £100,000 of debt service, giving 1.2 times coverage under that definition. A cash-flow forecast still tests monthly peaks and troughs.

Illustrative example only; not a finance quotation or a client case study.

Why it matters

It provides a structured view of repayment headroom and helps compare borrowing with the cash the business can generate.

Limitations and common misconceptions

There is no universal DSCR threshold or identical formula across lenders. EBITDA is not automatically cash available after tax, working-capital movements and essential capital expenditure.

Discuss business borrowing to discuss how the structure relates to your business.