Debt Service Coverage Ratio (DSCR) Calculator
Check whether a business's cash flow can carry the loan payments. Enter annual cash flow and annual debt service to see the ratio your lender will calculate.
Don't know your annual debt service yet? Price the loan first, then come back and enter the monthly payment × 12.
What DSCR means and why lenders require a minimum
DSCR is annual cash flow divided by annual debt service. It answers one question a lender cares about more than any other: after the business pays its bills, is there enough left to make the loan payments — with room to spare if a customer leaves or costs rise? At 1.00 the business exactly covers the payments and any bad month causes a miss. At 1.25 there's 25% of headroom, which is why most Canadian acquisition lenders set that as the floor.
Lenders don't use raw SDE. They typically deduct a market salary for whoever runs the business day to day plus expected capital expenditure, then divide by total principal and interest for the year. If your number and theirs differ, that's usually why.
If the ratio comes in short, the fixes are structural: a larger down payment, a longer amortization on the term loan, or moving part of the price into a vendor take-back note with lighter early payments. Our guide to financing a business purchase in Canada walks through each option.
This tool gives an estimate for planning purposes only and is not financial, tax, or legal advice.
Frequently asked questions
DSCR is annual cash flow divided by annual debt service (all principal and interest payments due in a year). A DSCR of 1.25 means the business generates $1.25 of cash for every $1.00 of loan payments. It's the single number lenders use to decide whether an acquisition can carry the debt.
Most banks, credit unions and BDC look for at least 1.20–1.25 on an acquisition loan, and some want 1.35+ for asset-light or owner-dependent businesses. Below 1.00 the business cannot cover the payments and the deal will be declined or restructured with more down payment or a vendor take-back.
Use the cash flow available to service debt — usually SDE less a market salary for the owner-operator, less expected capital expenditure. Lenders make their own adjustments, so treat your figure as a first pass and confirm the lender's calculation early.
Increase the down payment, lengthen the loan term, negotiate a lower rate, move part of the price into a vendor take-back with deferred or interest-only payments, or renegotiate the price. Each of these lowers annual debt service, which raises the ratio.
Lenders generally deduct a reasonable owner's salary before calculating DSCR, because you still have to live while the loan is being repaid. If you use raw SDE without that deduction, your ratio will look better than the lender's version.