Enter Coverage Assumptions
Formula Used
Net Operating Income (NOI) = Annual Revenue − Operating Expenses
Adjusted NOI = NOI + Other Income + Non-Cash Add-Backs − Owner Draw Adjustment − Reserve Requirement
Total Debt Service = Existing Annual Debt Service + Proposed Annual Debt Service
Base DSCR = Adjusted NOI ÷ Total Debt Service
Stressed DSCR = Adjusted NOI after income haircut ÷ stressed debt service
Use DSCR above 1.00x to show repayment capacity. Higher values provide more room for volatility, covenant compliance, and refinancing flexibility.
How to Use This Calculator
- Enter annual revenue and operating expenses to build your core NOI.
- Add recurring other income and permitted non-cash add-backs.
- Subtract owner draws or reserve requirements that reduce usable cash flow.
- Input existing and proposed annual debt service obligations.
- Apply an income haircut and rate stress to test downside resilience.
- Set target and minimum DSCR thresholds for your underwriting policy.
- Press calculate to see coverage, headroom, break-even revenue, and a risk band.
- Export the result summary as CSV or PDF for reviews.
Example Data Table
| Input | Example Value | Why It Matters |
|---|---|---|
| Annual Revenue | $850,000 | Primary cash inflow available to support debt. |
| Operating Expenses | $420,000 | Core business costs reduce operating income. |
| Other Income | $25,000 | Adds stable secondary earnings to repayment capacity. |
| Non-Cash Add-Backs | $18,000 | Restores accounting expenses without direct cash outflow. |
| Owner Draw Adjustment | $12,000 | Reflects cash removed from business support. |
| Reserve Requirement | $15,000 | Captures mandatory liquidity buffers or escrow needs. |
| Existing Debt Service | $90,000 | Shows current fixed repayment commitments. |
| Proposed Debt Service | $110,000 | Measures the added annual burden from new financing. |
Frequently Asked Questions
1. What does DSCR measure?
DSCR measures how comfortably operating cash flow covers annual debt obligations. A higher ratio means stronger repayment capacity and lower default pressure.
2. Is a DSCR above 1.00 always acceptable?
Not always. Many lenders prefer at least 1.20x to 1.30x because a thin cushion can disappear quickly if revenue softens or rates rise.
3. Why include non-cash add-backs?
They adjust accounting profit closer to cash flow. Depreciation and similar expenses reduce earnings, but they may not represent current cash outflows.
4. Why subtract reserve requirements?
Required reserves reduce cash available for repayment. Including them gives a more conservative and realistic view of actual debt service capacity.
5. What is stressed DSCR?
Stressed DSCR tests coverage under tougher conditions, such as reduced income or higher debt service. It helps evaluate resilience before approving a loan.
6. Can this calculator help with covenant planning?
Yes. It estimates headroom above policy targets, helping lenders or borrowers monitor compliance, negotiate covenants, and prepare mitigation steps early.
7. Should I use EBITDA instead of NOI?
That depends on the deal structure. Real estate often uses NOI, while operating businesses may rely on EBITDA with approved underwriting adjustments.
8. What does break-even revenue show?
It shows the minimum revenue needed to support expenses, adjustments, and target coverage. Lower break-even revenue usually means stronger repayment flexibility.