Enter the cash a business has available to service debt and the coverage ratio you are being held to, and this works out how much more it can borrow.
The coverage ratio is an input rather than a default because it is a covenant each financier sets, and it varies by sector, security and appetite.
Solves for the additional facility a business cashflow supports at a debt service coverage ratio you set, after existing commitments.
Cash available to service debt
Often EBITDA, adjusted for whatever a financier would add back or take out. Use the figure you can defend with statements, not the optimistic one.
Existing debt service
Principal and interest already committed on other facilities. Leaving these out is the most common way this arithmetic gets done wrong.
Debt service coverage ratio
How many times cash must cover total debt service. A higher ratio is a more conservative covenant and permits less borrowing.
The headline is the additional facility that fits inside the covenant once existing debt is served. The resulting coverage line confirms it: at the maximum, coverage should sit at the ratio you entered.
A zero result means existing commitments already consume the debt service the ratio permits. The remedy is either more cash, less existing debt, or a covenant the financier is prepared to relax.
Test it at several ratios. Moving from 1.5 to 1.25 changes the answer far more than most people expect, which is why the covenant is negotiated as hard as the rate.
Every figure below is computed by the same calculator on this page, from the inputs described. Nothing here is typed in by hand, so an example cannot disagree with the tool.
The permitted debt service is well below the cash available — that is the covenant doing its job. What is left after existing commitments is what the new facility can consume.
A tighter covenant on identical cashflow, and a materially smaller facility. Worth having in front of you before agreeing to a ratio in a term sheet.
Available cash divided by the coverage ratio gives the total debt service the covenant permits. Existing commitments are subtracted, leaving what a new facility may consume.
That annual amount is divided into monthly payments and inverted through the standard annuity formula at the rate and term entered, giving the principal it services.
The covenant is the only test
Real credit decisions also turn on security, sector, trading history, concentration of customers and the guarantors behind the entity. None of that is arithmetic and none of it is here.
Cashflow holds steady
The figure entered is treated as durable. Businesses whose earnings move with a commodity price, a season or one customer should test the answer at a lower figure.
Amortising, not interest-only
The facility is assumed to repay principal and interest over the term. An interest-only period would support a larger facility during it and a larger obligation afterwards.
Not a credit assessment
No financier has agreed to anything and this is not an approval. Business credit policy is private and varies more between lenders than consumer policy does.
Tax is not modelled
The cash figure is used as entered. Whether interest is deductible and how that changes the after-tax cost is outside this calculation.
Works out interest, maturity value and effective return on a term deposit held by a business, before and after tax at the rate that applies to the entity.
Works out the payment, total cost and interest on a chattel mortgage for a vehicle or item of equipment, including a balloon or residual where the contract has one.
Works out the payment and total cost of an equipment or vehicle lease over its term, including anything paid up front and the residual owing at the end.
This calculator can be embedded on a business website, branded to match it, with a call to action that sends the enquiry to that business rather than collecting anything here.