Debt-service coverage: build a business repayment stress test
Debt-service coverage compares a defined cash-flow measure with debt payments for the same period. The calculation is useful only when both the numerator and denominator are stated clearly and consistently.
Define the cash available for debt
Ask which cash-flow definition the lender uses and reconcile it with your records. Include all debt service relevant to that period rather than only the proposed EMI. Do not substitute turnover for cash available for repayment. Run a slower-sales or delayed-collection scenario and examine the lowest cash balance as well as a ratio. Lenders can use different definitions and required levels.
A worked situation
If the chosen annual cash-available measure is ₹12 lakh and annual debt service is ₹8 lakh, the illustrative ratio is 1.5. If cash availability falls to ₹9 lakh with debt service unchanged, it becomes 1.125. Neither figure by itself establishes approval or comfortable monthly liquidity.
Your next-step checklist
- State the exact calculation definition
- Match cash flow and repayments to one period
- Stress-test collections and all debt payments
Is there one universal passing DSCR?
No single threshold should be assumed for every lender, sector and product. Confirm the lender's definition and requirements, and also review the practical cash-flow timing behind the ratio.
Official references and further reading
These links help you check current information. A provider-specific page describes that provider’s process; it is not a universal eligibility rule or a claim of partnership.
General educational information, not a personalised credit recommendation. Examples use assumed inputs. Rates, charges, eligibility and documents vary; confirm your own lender’s current written terms.