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DSCR calculator for Canadian businesses
Calculate your debt service coverage ratio the way a commercial credit adjudicator does: cash flow available for debt service divided by total principal and interest. The formula, a worked example, and the adjustments that move the number are all below.
What is DSCR and how is it calculated?
DSCR is the debt service coverage ratio: cash flow available for debt service divided by total annual principal and interest. A DSCR of 1.25x means the business produced $1.25 of cash for every $1.00 of loan payments. Canadian commercial lenders commonly set minimum covenants between 1.15x and 1.35x, but the required level is set file by file.
Formula: DSCR = (EBITDA − unfinanced capital expenditure − cash taxes) ÷ (annual interest + annual principal repayments).
The calculator
Enter your annual figures
Use trailing twelve-month figures from your most recent financial statements. The result is an educational estimate, not a lending decision or an indication of approval.
Earnings before interest, tax, depreciation and amortization.
Capital spending required to sustain operations, paid in cash.
Taxes actually paid, not the accounting provision.
All facilities, including operating line interest.
Term debt and capital leases that are debt in substance.
Debt service coverage ratio
1.55x
Above the range most Canadian commercial lenders set as a minimum covenant. Headroom exists to absorb a revenue decline or a rate increase before compliance is at risk.
Cash flow available for debt service: $715,000
Total annual debt service: $460,000
This calculator is provided for educational purposes. It does not constitute a financing offer, a credit assessment, or advice on any specific transaction. Lenders apply their own normalization policies and covenant definitions, and their calculation may differ materially from the figure shown here.
Worked example
The same business, three lender treatments
The numerator is where files are won and lost. These three columns use identical financial statements and produce three different ratios.
| Line item | Owner's calculation | Conservative lender |
|---|---|---|
| EBITDA as reported | $850,000 | $850,000 |
| Owner salary normalized to market | No adjustment | −$90,000 |
| One-time legal costs added back | +$65,000 | Not accepted |
| Maintenance capital expenditure | Not deducted | −$75,000 |
| Cash taxes | −$60,000 | −$60,000 |
| Cash flow available for debt service | $855,000 | $625,000 |
| Total debt service | $460,000 | $460,000 |
| DSCR | 1.86x | 1.36x |
Both figures are defensible. Neither is the number a credit committee will use until each adjustment has been justified in writing. That justification is the substance of a lender-ready financing package.
Interpretation
What each range typically signals
| DSCR range | How commercial credit usually reads it | Practical next step |
|---|---|---|
| Below 1.00x | Cash flow does not cover existing obligations. | Restructure amortization or reduce debt before applying. |
| 1.00x – 1.14x | Covered, but no tolerance for a downside case. | Model a revenue decline and a rate increase; expect scrutiny. |
| 1.15x – 1.34x | Inside the range where covenants are commonly set. | Document add-backs carefully; headroom is thin. |
| 1.35x – 1.75x | Comfortable coverage for most conventional files. | Focus on collateral, concentration, and documentation. |
| Above 1.75x | Strong coverage; capacity may be under-used. | Review whether a larger or cheaper facility is available. |
Ranges above describe common market practice observed in Canadian commercial credit. They are not thresholds published by any lender or regulator, and no lender is bound by them.
Questions people ask
DSCR, answered directly
What is DSCR?+
DSCR — debt service coverage ratio — measures whether a business produces enough cash to cover its loan payments. It divides annual cash flow available for debt service by total annual principal and interest. A DSCR of 1.25 means the business generated $1.25 of cash for every $1.00 of debt payments over the period.
How is DSCR calculated?+
DSCR = cash flow available for debt service ÷ total annual debt service. Most Canadian commercial lenders start from EBITDA, then subtract unfinanced capital expenditures, cash taxes, and sometimes owner distributions. Total debt service includes principal and interest on every facility, including leases treated as debt.
What is a good DSCR?+
Requirements are set by each lender and each credit file, not by a universal rule. In Canadian commercial credit, minimum covenants commonly sit between 1.15x and 1.35x, with stronger files priced better above that. Below roughly 1.10x, most conventional lenders will look for additional security, a guarantee, or a smaller facility.
Why does my DSCR differ from my lender's calculation?+
Because the numerator is a judgment. Lenders normalize earnings: they add back one-time costs they accept, remove add-backs they do not accept, deduct maintenance capital expenditure, and may impute a market salary for an owner-manager. Two defensible calculations on the same statements can differ by 0.2x or more.
Does DSCR include leases and shareholder loans?+
Usually yes for leases that are debt in substance, and it depends for shareholder loans. If a shareholder loan is formally postponed and no payments are made, many lenders exclude it. If it is being serviced in cash, expect it to be counted. Confirm the treatment with the lender before relying on a figure.
How do I improve DSCR before applying?+
The realistic levers are extending amortization on existing term debt, consolidating short-amortization facilities, removing discretionary expenses that a lender will not add back, deferring non-essential capital spending, and improving margin. Each takes time, which is why the ratio is best reviewed months before a renewal or application.
Related: how much your business can borrow, monitoring a DSCR covenant, and the documents a Canadian lender will request.
Methodology and review
The debt-service coverage ratio here is calculated as normalized EBITDA divided by total annual principal and interest, the same formula Canadian commercial credit teams apply. Normalization follows standard adjustments for non-recurring items and owner-discretionary expenses.
Reviewed by the Unity Global Financial capital advisory team. Unity Global Financial is an independent capital advisory firm working with Canadian commercial, business, securities-backed and alternative capital sources. We are not a bank, a direct lender, or a securities dealer, and nothing on this page is legal, tax, accounting or investment advice.
Last reviewed: August 2026
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