DSCR Calculation - SDE or EBITDA?

by a searcher from University of California, Los Angeles

1 month ago

Do SBA lenders typically calculate DSCR using SDE (net income + officer salaries + reasonable addbacks)? Or do they use EBITDA? I've heard that they'll use one of those numbers and then substract a salary value (say $100k) to account for the new owner's salary. If that is the case, what is that adjusted salary value?

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lender

There is no "one size fits all" approach to this. Every deal is different, and every lender is different. If you do not understand how your lender is calculating cash flow (SDE, adjusted EBITDA, or going off the M1), you better ask them. Not every lender calculates officer comp back the same way and it also depends on what is going on with the buyer(s) and his/her/their needs. Are there affiliate businesses? How are those being calculated. If you are not making adjustments for every deal you are considering, you are setting yourself up for failure.

1 month ago | like reply | 0 likes

investor from Stanford University

It is my understanding that SBA lenders typically use EBITDA to calculate the Debt Service Coverage Ratio (DSCR). However, some lenders might also calculate DSCR using SDE, which includes net income, officer salaries and reasonable addbacks (especially for smaller businesses or those where the owner's compensation is a significant factor). Hope this helps.

1 month ago | like reply | 0 likes

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