DSCR is short for debt service coverage ratio.

DSCR measures the ratio of available cash flow to debt payments (principal and interest).  It is a measure used by banks and other lenders to be sure you have enough cash flow to pay your loans.  Many times lenders will put in thier loan agreements requirements that a borrower maintain a certain DSCR ratio.  These requirements are also known as loan covenants.  Failing to maintain certain loan covenants could have some significant negative consequences (sometimes financial penalties or the potential of the loan being called). read more

EBITDA is short for “earnings before interest, taxes, depreciation, and amortization”.

Although it can be used for other purposes, such as determining the value of a company, EBITDA is a term and concept used quite often in financing or loan transactions.

When preparing a DSCR calculation and a company’s cash flow must be determined, most frequently EBITDA will be the figure used.  EBITDA is considered to be a more true representation of a company’s cash flow from operations mainly because it does not include any reductions for debt related activity such as interest expense or non-cash expenses such as depreciation or amortization.   There are times when a loan document may have additional adjustments to a company’s earnings to arrive at a “modified” EBITDA figure and those additional adjustments will, almost always, be defined in the applicable loan documents. read more