DSCR calculator: debt-service coverage ratio
Debt-service coverage ratio is normalised EBITDA divided by total annual debt service, including the proposed new loan. Many UK SMB term lenders look for about 1.25 or more, and a figure below 1.0 means EBITDA doesn't cover the repayments; exact thresholds and stress tests vary by lender. Enter your EBITDA, existing debt service and the new repayment to see your DSCR, a stressed DSCR and which lender band you land in.
Founder & Managing Director, Muswell Rose, FundBiz
Adam is the founder and managing director of Muswell Rose and a founder of Best Business Loans Ltd, the company behind FundBiz. His background runs through commercial finance, mortgages and fintech, including as managing director of an invoice finance business. He oversees FundBiz's guides and lender reviews.
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Work out your DSCR
- Total annual debt service
- £140,000
- DSCR
- 1.29
- Stressed DSCR
- 1.09
- Headroom over debt service
- 29%
- Lender band
- Mainstream floor met
Illustrative. Lenders calculate DSCR at the borrower level on filed accounts and run their own stress tests; treat this as a sanity check, not an underwriting decision.
The maths in plain English
The formula is simple. The quality is in the inputs.
- Numerator: normalised EBITDA. Profit before tax plus interest, depreciation and amortisation, from the latest filed Ltd or LLP accounts. Then normalise: add back one-off costs, add back owner remuneration above market, and strip out revenue that won't recur.
- Denominator: total annual debt service. Every committed repayment over the next 12 months. Existing term-loan and asset-finance instalments, owner-occupier mortgage interest, serviced director loans, plus the proposed new loan.
- Divide. EBITDA over debt service. 1.0 means EBITDA covers debt service exactly; 1.25 means it exceeds it by 25%; 2.0 means EBITDA is twice debt service.
- Stress. Reduce EBITDA by a percentage (a fall in revenue usually cuts EBITDA by more than the same percentage, because many costs are fixed) and recalculate. Many lenders look for about 1.25 or more, but thresholds and stress tests vary by lender and are rarely published.
The most common cause of a calculated DSCR landing above the lender-calculated DSCR is missed debt service: unreported MCAs, asset-finance contracts in trading names, and director loans serviced from the company. Count all of it.
Worked examples
| EBITDA | Debt service | DSCR | Stressed (15%) | Band |
|---|---|---|---|---|
| £180,000 | £180,000 | 1.00 | 0.85 | Specialist / post-decline routes |
| £180,000 | £140,000 | 1.29 | 1.09 | Mainstream floor met |
| £225,000 | £150,000 | 1.50 | 1.27 | Competitive-pricing band |
| £400,000 | £200,000 | 2.00 | 1.70 | Cleanest underwriting band |
At 1.0 the business covers debt service exactly with nothing left for tax, dividends or a rate rise, so mainstream lenders decline. 1.25 is the standard clean-credit floor; 1.5 is where lenders compete on price; 2.0 puts you inside the cleanest band.
| Normalised EBITDA | Total annual debt service | DSCR | Stressed DSCR (EBITDA -15%) | Headroom | Lender band |
|---|---|---|---|---|---|
| £180,000 | £180,000 | 1.00 | 0.85 | 0% | Specialist / post-decline routes |
| £180,000 | £140,000 | 1.29 | 1.09 | 29% | Mainstream floor met |
| £225,000 | £150,000 | 1.50 | 1.27 | 50% | Competitive-pricing band |
| £400,000 | £200,000 | 2.00 | 1.70 | 100% | Cleanest underwriting band |
Source: FundBiz DSCR worked examples
DSCR = normalised EBITDA / total annual debt service (existing committed repayments plus the proposed new loan). Stressed DSCR reduces EBITDA by 15% over the same debt service. Illustrative; lenders use filed accounts and their own stress parameters.
View as plain-text Markdown
### Worked examples: DSCR from normalised EBITDA and total annual debt service (UK SMB term loans) | Normalised EBITDA | Total annual debt service | DSCR | Stressed DSCR (EBITDA -15%) | Headroom | Lender band | | --- | --- | --- | --- | --- | --- | | £180,000 | £180,000 | 1.00 | 0.85 | 0% | Specialist / post-decline routes | | £180,000 | £140,000 | 1.29 | 1.09 | 29% | Mainstream floor met | | £225,000 | £150,000 | 1.50 | 1.27 | 50% | Competitive-pricing band | | £400,000 | £200,000 | 2.00 | 1.70 | 100% | Cleanest underwriting band | Source: FundBiz DSCR worked examples DSCR = normalised EBITDA / total annual debt service (existing committed repayments plus the proposed new loan). Stressed DSCR reduces EBITDA by 15% over the same debt service. Illustrative; lenders use filed accounts and their own stress parameters.
“A 1.5 annual DSCR can hide a seasonal business that fails the lowest-quarter test, and that is where I see clean-looking applications stall. Lenders for hospitality, retail and agricultural clients often run a separate lowest-quarter DSCR and want a higher annual figure or an overdraft alongside the term loan. The other quiet killer is hidden debt service: an MCA in a trading name or a serviced director loan that the applicant left out lifts the real denominator and drops the lender's DSCR below the floor at offer stage.”
FAQ
What DSCR do UK lenders want to see?
Many UK SMB term lenders look for around 1.25 for clean-credit applicants, though they rarely publish a fixed floor. Commercial-mortgage and asset-backed lenders often test DSCR at a higher, stressed interest rate, and specialist lenders may accept lower cover at higher pricing, but thresholds vary and are rarely published. Below 1.0 means cashflow doesn't cover the proposed repayments, which most lenders won't accept.
EBITDA or operating cashflow in the numerator?
Mainstream UK SMB lenders use EBITDA or normalised EBITDA. Larger commercial-mortgage and asset-backed lenders move to operating or free cashflow because it captures working-capital movement. The number changes materially between EBITDA and free cashflow for businesses with growing receivables.
Total debt service or proposed debt service only?
Total. The denominator must include every existing committed repayment plus the proposed new repayment. Hidden facilities, such as unreported MCAs, asset-finance contracts in trading names and serviced director loans, are the most common reason a calculated DSCR lands above the lender-calculated DSCR at offer stage.
How do I improve DSCR before applying?
Three levers. Raise normalised EBITDA by reversing one-off costs and trimming owner remuneration above market. Lower total debt service by refinancing short-term debt onto longer terms or settling small expensive balances first. Lengthen the proposed term, since a longer term lowers monthly debt service and lifts DSCR mechanically.
Related
- Affordability ratio The monthly-repayment cover check that sits alongside annual DSCR.
- Unsecured loan stress test spreadsheet Six scenarios side by side, from the loan amount, rate and term, as an Excel file.
- Blended cost of capital When you run two or three facilities, blend them before reading DSCR.
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