DSCR compares what the business generates with what it owes. Lenders typically divide operating cash flow, often measured as EBITDA, by the year's principal and interest payments on all business debt, including the new loan. A ratio of 1.00 means every dollar of cash flow goes to debt, and anything above that is cushion.
Banks and SBA lenders set minimums. Since March 1, 2026, the SBA has required a DSCR of at least 1.1 on 7(a) Small Loans, on a historical or projected basis. Other lenders set their own.
Example: $150,000 of cash flow against $100,000 of annual debt payments is a DSCR of 1.50. Add a loan with $36,000 a year in payments, and the ratio falls to about 1.10, just above the SBA floor for a 7(a) Small Loan.
Merchant cash advance underwriting focuses on deposits rather than DSCR, but open advance payments can count as debt service when a bank runs the numbers later.
Sources
- Procedural Notice 5000-875701: Sunset of SBSS Score for 7(a) Small Loans (Jan. 16, 2026; effective Mar. 1, 2026) — U.S. Small Business Administration (checked 2026-09-30)
- Procedural Notice 5000-876777: Sunset of SBSS Score, Supplemental Guidance — U.S. Small Business Administration (checked 2026-09-30)