What DSCR measures
Debt-service coverage ratio compares the cash flow available to pay debt with the annual payments on existing and proposed debt. A result above 1.00 means the entered cash flow exceeds the modeled payments. A result below 1.00 means it does not.
Worked example
Annual cash flow available for debt payments$285,000
Existing annual debt payments$15,000
Modeled new annual debt payments$202,400
Total annual debt payments$217,400
Planning DSCR1.31×
In this example, $285,000 divided by $217,400 equals approximately 1.31. That indicates a planning cushion, but it does not determine lender approval.
Why your lender may get a different number
Lenders may adjust earnings, reject certain add-backs, include global personal or affiliate debt, use a different interest rate, or apply a different amortization period. BorrowerDesk therefore labels its result as planning DSCR.
Stress the assumptions
Do not test only the most optimistic case. Recalculate with a higher interest rate, lower cash flow, fewer add-backs, and any debt that will remain after closing. The deal should still make sense when assumptions move against you.
Official term context
The SBA states that most 7(a) term loans are repaid with monthly principal and interest payments from business cash flow. Terms are negotiated with the lender, subject to SBA requirements. Most non-real-estate 7(a) terms are ten years or less, while qualifying real-estate financing can extend to 25 years.