What 20 IT MSP deals taught me about SBA DSCR (the number most buyers get wrong)

DSCR is the number that decides whether your deal gets financed. SBA requires 1.25× minimum. Most buyers know that. What most buyers miss is what actually goes into the calculation. DSCR = CFADS ÷ Annual Debt Service CFADS is not EBITDA. It's cash flow available for debt service, which means: → Adjusted EBITDA minus a market-rate salary for whoever runs the business after you → Minus estimated taxes (21–25%) → Minus working capital buffer and maintenance capex Here's where most models go wrong. On a $3M IT MSP with $900K broker-adjusted EBITDA: Broker's replacement salary assumption: $80–100K (what's in the CIM) Real market-rate GM for a $3M MSP: $150–160K That's a $60–70K gap nobody talks about on the intro call. Run it correctly: $900K adj. EBITDA Less real GM salary ($160K): $740K Less 21% taxes: $585K CFADS Debt service on a $2.55M SBA loan at current rates (~11%) over 10 years: ~$422K annually DSCR: 585 ÷ 422 = 1.39× passes, but with a meaningful cushion only if your GM assumption is right. Now model it with the broker's $90K GM assumption instead: $900K − $90K = $810K, less taxes = $640K CFADS DSCR: 640 ÷ 422 = 1.52× looks great on paper You go to underwriting with 1.52×. Lender uses 1.39×. Deal either gets repriced or dies at the desk. Brokers model this using the most favorable replacement assumption they can justify. Lenders model it at the market rate. The gap is where deals die. Model DSCR with your real GM assumption before you spend a dollar on diligence. Takes 20 minutes. Saves you 4 months on deals that were never going to fund at the broker's number.