BTB Buyer Guide
DSCR in a Business Acquisition
Debt service coverage ratio compares cash available for debt service with required debt payments. In acquisition analysis, the usefulness of a DSCR result depends on the cash-flow figure and debt assumptions used to calculate it.
BTB guide · Updated September 30, 2026
Use DSCR as a scenario, not a guarantee
A stronger-looking ratio does not prove a loan will be approved or a business will perform as expected. Buyers should test changes in purchase price, down payment, interest rate, loan term, seller financing and sustainable cash flow. Lenders apply their own underwriting standards, definitions and adjustments.
How the math works
At its simplest, DSCR compares the cash flow being used for debt coverage with required debt service. For an educational example, $180,000 of qualifying annual cash flow divided by $120,000 of annual debt service equals 1.50. If debt service rises to $150,000 while cash flow stays unchanged, the same calculation becomes 1.20. This illustrates why purchase price, financing terms and the earnings figure used all matter. It does not predict lender approval.
Use working-capital planning separately so operating cash needs do not disappear inside a debt-service calculation.
Put the guide to work
Educational information only. Verify transaction, legal, tax, accounting and lending questions with qualified professionals and current source material.
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