Before a bank approves the loan, it runs one test above all others. Here is the number it is checking, and how to know yours before you apply.
When a lender looks at a project, a great deal of the decision comes down to one number: debt service coverage. It compares the cash a project produces in a year to the debt payments it owes in that year. If the project earns a dollar and a quarter for every dollar of payment, the coverage is 1.25. Banks care about this number because it tells them, in one figure, whether the project can pay them back without drama.
Most commercial lenders want to see coverage comfortably above 1.0, often around 1.20 to 1.35 depending on the deal and the risk. Above the floor, the project pays its debt with a cushion for the bad months. At exactly 1.0 there is no room for a slow season, and below it the project cannot cover its own loan out of its own earnings. Knowing the floor your lender uses tells you the target your numbers actually have to hit.
The mistake is rarely dishonesty. It is optimism. Borrowers build coverage on the strongest plausible year: full occupancy, revenue at plan, costs held down. The bank then reruns the same ratio on its own more conservative assumptions, and the number that looked safe slips under the floor. The gap between your version and theirs is where deals die, usually after you have already spent time and money getting to the table.
You can run debt service coverage on yourself before you ever apply, using the conservative assumptions a lender would use rather than the ones you are hoping for. Doing that tells you one of three things: the deal clears with room, the deal is close and needs restructuring, or the deal does not work as drawn. Each of those is worth knowing while you can still act on it.
A borrower who arrives already showing honest coverage against a realistic case is a different applicant from one asking the bank to check the math. The first has done the lender's job for it and can defend every number. That is the whole idea behind testing a project before it is exposed to financing: you want to find the weak assumption at your own desk, not across the loan officer's.
Heading into financing? Tell us about the project and the loan, and we will run honest debt service coverage on it before the bank does.
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