Key takeaways
What to know before you compare
- Use consistent monthly periods for inflow, operating expenses, and debt service.
- Exclude debt payments from operating expenses if they are entered separately.
- Stress-test a slower revenue month and the lowest-cash season.
- Do not treat one ratio as a universal approval threshold.
Repayment-readiness worksheet
Estimate monthly cash-flow coverage
Use one consistent monthly period. Enter operating expenses before debt payments, then list debt service separately.
A planning ratio is not an approval standard. Lenders may define and adjust cash flow differently; seasonal businesses should also model their lowest-cash period.
What does the worksheet calculate?
Cash available for debt service equals monthly cash inflow minus operating expenses entered before debt payments. Total debt service adds existing monthly loan payments and the proposed payment. Dividing available cash by total debt service produces a planning coverage ratio.
The worksheet also shows the remaining monthly cushion and repeats the ratio after reducing inflow by 10%. That stress case is a starting point; use a business-specific decline when history supports a different scenario.
How should the inputs be prepared?
Use cash-flow figures from the same period and avoid counting debt payments twice. Consider cash taxes, recurring capital purchases, owner distributions, inventory purchases, and receivable timing. EBITDA can be a useful starting proxy, but it can overstate spendable cash when working capital is growing.
For seasonal businesses, run the worksheet for a typical month and the weakest month. An annual ratio can look comfortable while a short cash gap causes a missed debit.
How should the result be interpreted?
A ratio below 1.0 means the entered cash available is less than scheduled debt service. A result above 1.0 indicates a positive modeled cushion, not automatic readiness or approval. Lenders may adjust earnings, normalize owner compensation, exclude unusual income, or use annual principal and interest.
Compare the worksheet with the lender’s own definition. Identify balloon payments and variable-rate changes separately because averaging them can hide a future cash requirement.
Frequently asked questions
What is a good debt-service coverage ratio?
There is no universal number for every lender or product. Ask how the lender defines cash flow and what cushion it requires.
Should owner distributions be included in expenses?
Include recurring cash outflows needed to reflect the business realistically, or test the ratio both before and after discretionary distributions.
Why can lender results differ from this worksheet?
A lender may use annual statements, tax-return adjustments, normalized expenses, different debt figures, or a product-specific calculation.
Sources and methodology
Karma Loans uses primary government and regulatory sources for material definitions and consumer guidance. Calculators use the assumptions shown beside each tool and round displayed results to two decimal places.
Educational use only. This article and its calculators are not financial, legal, tax, or accounting advice. Karma Loans is not a lender and does not make credit decisions. Provider disclosures and signed agreements control.