Short Explanation
Debt service coverage ratio (DSCR) – Backtest is a credit metric calculated as (EBITDA – Capital Expenditures) / (Mandatory Debt Payments in First Projected Year).
Additional Detail
DSCR Backtest is only calculated for historical years. Use standard DSCR feature for projected years.
DSCR in general is a metric used by lenders to compare a company’s cash flow against debt obligations. The lower the DSCR, the more risky lenders will view a loan as less cash is available to pay debt. DSCR – Backtest is unique in that it calculates historical results against future projected debt obligations. This allows a lender to hypothesize on how a risky a credit is against previous historical results and not just future projections.
Different lenders will have different minimum DSCR – Backtest levels they expect. It can also change over time depending on credit market conditions. As very rough guidance, expect to see a minimum level required or around 1.3x for SBA transactions.
DSCR – Backtest can be added to existing deals or to templates.
