While several factors are considered in commercial loan underwriting, debt service coverage is primary among them and indicates a borrower's capacity to service a requested loan. This tool calculates debt service and illustrates how debt service coverage ratios are impacted by changing income and capital assumptions.
Debt Service Coverage Calculator
Debt Service Coverage Calculator Definitions
- New loan amount
- Total amount of your loan.
- Amortization in years
- Payment period in years.
- Interest rate
- Annual interest rate for this loan. Interest is calculated monthly on the current outstanding balance of your loan at 1/12 of the annual rate.
- New monthly payment
- Monthly payment for this loan.
- EBITDARM represents earnings before interest, taxes (income), depreciation, amortization, rent and management fees. This represents net operating income before 'provision for management fees' and after property expenses associated with real estate taxes and insurance.
- Provision for management costs
- Lenders typically require a provision for management costs of not less than 5% of revenue. The resulting EBITDAR represents operating cash flow available for debt service (or rent as applicable), before provision for capital expenditures.
- EBITDR represents earnings before interest, taxes (income), depreciation and rent. This represents net operating income after 'provision for management fees'.
- Provision for capital expenditures
- Lenders typically require a provision for capital expenditures to fund capital needs associated with continuing operations.
- Debt service coverage (DSC)
- The debt service coverage is determined by dividing the total annual income available to pay debt service by the annual debt service requirement. Lenders and investors typically seek DSC ratios of not less than 1.25.