MoneyClarityTech · Business loans

Before anyone asks about collateral, they check this one number.

DSCR — the debt service coverage ratio — asks a plain question: for every rupee the business owes its lenders this year, how many rupees does it actually earn to pay with? Below 1, the loan is being paid from somewhere else. A guarantee, a subsidy or a property does not change the answer. Put in your numbers and see yours the way the branch will.

Your business, one full year

Net profit after taxProjected, for the first full year of the new loan — after interest on every loan, this one included

DepreciationFrom the same projection. No cash leaves for it, so it is added back

Existing term loans: interest this yearLeave 0 if the new loan is your only term loan. Cash credit interest does not go here

Existing term loans: principal due this yearTwelve months of principal instalments, not the balance owed

The loan you are applying for

Loan amount

Interest rate% a year

Repayment periodYears of principal repayment, after any moratorium

Repaid as

Benchmark to test againstEach bank sets its own. Around 1.25 to 1.5 is a common expectation

Your DSCR in the first year

—

Cash to pay lenders—

Owed to lenders this year—

Room over benchmark—

Year by year

—

Year	DSCR	Owed this year	Interest	Principal

What would pass

—

Profit after tax needed in the heaviest year—

Largest new loan these numbers carry, same rate and years—

Years needed to repay this loan at the benchmark—

How the branch reads the ratio

Interest is added back, then counted again

The profit figure has already had interest taken out of it. Since interest is exactly one of the things the cash has to pay, it is put back on top and listed again underneath. That is why the formula looks odd — profit plus depreciation plus interest, over interest plus principal — and why leaving interest out of either line gives a wrong answer.

Only term loans go underneath

Interest on a cash credit or overdraft is treated as a running cost of the business — it is already inside your profit. What goes below the line is the interest and principal of term loans, yours and any others you already carry.

Your projection is read against your returns

A branch compares the profit in the project report with the profit in your last income-tax returns. A jump from ₹2 lakh to ₹8 lakh in one year needs an explanation on paper — a new machine's output, a signed order — or the branch will run the ratio on the lower number.

A proprietor's household comes out first

For a proprietorship, the profit is also the family's income. Many branches reduce it by what the proprietor draws for living costs before they test the ratio. If your projection leaves nothing for home, expect the branch to leave something for you.

A guarantee does not move the ratio

CGTMSE, a subsidy or a pledged property changes what happens after a default. None of them changes whether the business can pay. A ratio below 1 is declined with or without collateral; the security question only comes up once this one is answered.

How to read this. The ratio here is the standard one for term loans: net profit after tax, plus depreciation, plus interest on term loans, divided by the year's term-loan interest and principal. The new loan's schedule is built from its first repayment month, with interest at one-twelfth of the annual rate on the balance each month. The year-by-year table assumes the cash the business earns before paying any lender stays the same every year and that existing term-loan payments stay as entered; real projections rise and fall, and a bank will use yours. Banks also look at the average ratio over the loan, the lowest single year, and ratios like the current ratio and debt-to-equity, and each sets its own benchmark. This tool is education, not advice. Nothing is uploaded, nothing is stored, and every figure is computed on your own phone.