Minimum DSCR?

February 01, 2023
by a searcher from Ivey Business School at Western University in Toronto, ON, Canada
I know there's no one size fits all, but I'm wondering what people use as their minimum DSCR when evaluating deal structures? Banks in my area have a covenant at ~1.25 and obviously you need cushion on top of that. Any and all thoughts are much appreciated :)
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
If you are looking at a variable rate loan, like most SBA loans are, the lenders are typically stressing the interest rate 1 to 3% today. So if your initial rate would be 9%, they are also underwriting it at 10% to 12% when stressed. Most lenders do not require you still hit a 1.25x DSCR when it is stressed, but they all have what they want it to hit when stressed. Some are 1.00x, others, 1.05x, and some up to 1.15x. When we underwrite for our clients when looking at deals we are underwriting based on 12% today and trying to get the deal to hit. 1.25x when stressed. The reason for this is we do not want our customers to end up in a bad position if interest rates rise post closing. Better to have room if they move up. Although I do not think interest rates are going to move up too much more and could come back down in the near future, you want to be sure your deal works if rates do move up.
If you want to discuss all options further, as we have over 500 funding partners, I can be reached here or directly at redacted Thank you.
from The University of Chicago in Chicago, IL, USA
BVX Constraints: BVX has multiple constraints; examples, a) minimize equity, b) buyer equity <= available equity, c) ROI is >= target, d) debt <= available debt, e) all debt is serviced after cash is put aside for DSCR, f) 1st borrow again LOC than term debt, g) use debt, if available, to fund growth and CapX, h) use excess cash flow to pay down debt in a pecking order, etc.