DSCR is the number that decides whether your deal gets financed. SBA floor is 1.25×. Most buyers know that going in. What most buyers miss is what actually goes into the calculation.
CFADS is not EBITDA. It's cash flow available for debt service. Which means you have to subtract:
That first one is where deals die.
I looked at an IT MSP asking $3M with $900K broker-adjusted EBITDA. CIM showed a $90K replacement salary for the GM role. I've hired for that role. The actual market rate for someone who can run a $3M MSP without the founder is $150–160K.
That $70K gap doesn't sound like much. Here's what it does to the math.
Broker's model: $900K − $90K = $810K → less 21% taxes → $640K CFADS
My model: $900K − $160K = $740K → less 21% taxes → $585K CFADS
Debt service on a $2.55M SBA loan at 11% over 10 years is about $422K annually.
Broker's DSCR: 640 ÷ 422 = 1.52×. Looks fundable.
My DSCR: 585 ÷ 422 = 1.39×. Still passes, but with a lot less cushion.
Now cut revenue 8% in Year 1 — common in any transition. CFADS drops to ~$538K. DSCR goes to 1.27×. One bad month and you're under the floor.
Lenders model this at market rate. Brokers model it at whatever they can justify. The gap between those two numbers is exactly where deals get repriced at the underwriting desk.
I model DSCR before I spend a dollar on diligence now. Takes 20 minutes. Has saved me months on deals that were never going to fund.
If you're running the numbers on a deal and want a second opinion on the DSCR math, happy to walk through it.