Experience Operating with Low DSCR

by an investor

1 year ago

Wondering if anyone can comment on their experience with purchasing businesses at <1.5 DSCR. I am looking at a recurring revenue, recession resistant business for 3.7x SDE. The business has consistent revenue and EBITDA for 2022 & 2023. DSCR is 1.3 at 2022 cash flow and 1.0 at 2021 cash flow. The business is in a niche with the ability to grow., but it's a small business with <$500K SDE

Lenders have given it the green light, but it gives me some pause on the DSCR being that low.

Has anyone on here bought and operated a business around those terms? Was it constant stress?

1 like
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13 comments

professional from University of Southern California - Marshall School of Business

Don't try it. Go for enough CF.

1 year ago | like reply | 0 likes

searcher from Universidad de San Pablo CEU

Agree with Amit´s comment in that DSCR (on FCFE) should not be so low with that multiple unless i) you are including to much debt trying to achieve higher IRR ii) there are a lot payments below EBITDA such as taxes that makes FCFE a lot lower than EBITDA.

1 year ago | like reply | 0 likes

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