SBA Loan DSCR Calculator
Test any purchase price against SBA debt financing reality
🛑 Stop Guessing: Instantly Check Your Deal's Fundability with the SBA DSCR Calculator
So you've found the perfect small business—a MedSpa, a manufacturing plant, or a niche service company. You have the price and the cash flow (SDE). Now comes the critical moment: will a lender actually fund this deal?
The single biggest reason small business acquisitions fail is not the price, but the inability to pass the Debt Service Coverage Ratio (DSCR) test required by the Small Business Administration (SBA).
Our free, dynamic SBA 7(a) DSCR & Fundability Calculator lets you instantly test any purchase price against a lender's toughest underwriting standard.
1. What is DSCR and Why is it the SBA's Litmus Test?
The Debt Service Coverage Ratio (DSCR) is the primary metric lenders use to determine if a business generates enough reliable cash flow to cover the proposed loan payments.
Simply put:
DSCR = Business Cash Flow (SDE) / Annual Debt Service (Loan Payments)
Why the SBA Requires It
The SBA acts as a guarantor for a portion of the loan. To minimize risk, they require banks to prove that the business itself can easily handle the debt.
- A DSCR of 1.0x means the cash flow exactly equals the loan payment, leaving zero room for error. Banks consider this too risky.
- The Minimum Standard: Most SBA lenders require a DSCR of 1.15x to 1.25x or higher. If your deal is testing at 1.25x, it means the business must generate $1.25 in cash flow for every $1.00 owed in annual debt payments.
Crucially: Most acquisition deals fail the debt service test because the buyer or seller is using an unrealistic valuation. They focus on the multiple when they should be focusing on the cash flow margin. Our calculator shows you both instantly.
2. Calculating Your Real Cash Flow: Seller's Discretionary Earnings (SDE)
Lenders don't look at the business's Net Income. They look at Seller's Discretionary Earnings (SDE)—a truer measure of the cash flow available to the new owner to service debt and pay themselves a salary.
The SDE Formula
SDE starts with the business's Net Profit and adds back expenses that are either non-cash or discretionary (non-essential) to the new owner:
SDE = Net Income + Owner's Salary + Add-backs
Typical Add-backs Include: Owner's personal expenses, non-recurring legal fees, large one-time repairs, and non-cash expenses (Depreciation and Amortization).
Your Action: Before using this calculator, you must arrive at an honest, defendable SDE. If you inflate the SDE, the lender will catch it during due diligence, and your deal will fail. The calculator allows you to adjust this number to quickly see how small changes in SDE impact your fundability.
3. The Silent Killer: How Interest Rates Affect Fundability
When you input a Purchase Price and SDE into the tool, the system calculates the Annual Debt Service (ADS) required for that price. This ADS is highly sensitive to the interest rate and loan term.
- Higher Rates = Higher ADS: If rates rise, the Annual Debt Service (the bottom half of the DSCR equation) increases. This drives the DSCR down, making the deal riskier to the bank.
- Fundability Risk: A deal that was fundable at a 7% rate might suddenly become **unfundable** if the rate climbs to 10%.
The Takeaway: Always stress-test your deal using an interest rate slightly higher than today's prevailing rate to ensure you have a safety buffer against future rate increases.
🚀 Use Our Tool to Save Time and Money
Most small business deals fail on the debt service test. Buyers and brokers often use generic SDE multiples without running the actual bank math.
Our calculator solves this by:
- Instant Reality Check: It calculates the Actual DSCR needed to service the resulting debt.
- Cash Flow Clarity: It shows you the exact dollar amount and percentage of your SDE that is "eaten up" by the loan payment.
- Dynamic Structuring: You can instantly adjust the Purchase Price and Seller's Note to find a deal structure that
