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Show formula & working
DSCR = (PAT + Depreciation & amortisation + Interest on term debt) ÷ (Principal repayment of term debt + Interest on term debt)
Average DSCR = Σ cash available ÷ Σ debt service
Cash available is the profit after tax with non-cash charges and term-loan interest added back. Some lenders also add other non-cash items; switch them on if yours does. The simple mean of the yearly ratios is shown alongside, as some lenders use it.How this works
DSCR asks whether the cash a business generates can pay its term-loan instalments. The top line adds back depreciation (a non-cash charge) and the term-loan interest to profit after tax; the bottom line is the year's principal and interest due.
A DSCR of 1.00x means cash flow only just covers the instalments. Lenders look for a cushion above that, both on average over the loan and in the weakest year.
The stress test lowers profit in every year by the same percentage, which shows how much room there is before cover gets thin — useful when choosing the loan amount, tenure or a moratorium.
Frequently asked questions
Why is interest added to the top line as well as the bottom?
Profit after tax is struck after interest has been paid. Adding term-loan interest back gives the cash available before servicing the debt, which is then compared with the full instalment of principal plus interest.
Average or minimum DSCR — which matters?
Both. Lenders commonly look at the average over the repayment period and also check that no single year falls too low. A weak year can often be smoothed by changing the repayment schedule.
Should working-capital interest be included?
Usually not. DSCR is about term debt: use the interest and principal on term loans. Interest on cash credit or overdraft is already a cost deducted before PAT.
What DSCR do lenders expect?
It varies by lender, sector and loan. Figures around 1.25x to 1.50x are often quoted as typical references. The benchmark here is adjustable and is not an approval criterion.
Can I paste figures from Excel?
Yes. Copy a block of numbers — items in rows, years in columns — and paste into any cell of the projections table.
Structuring a term loan?
The repayment schedule, moratorium and tenure all change DSCR. Talk to us before you approach lenders.