Glossary · Reading the business
Negative Debt Service Coverage
In short
When a business's cash flow is insufficient to cover its debt payments. This is a critical red flag for lenders and indicates a high risk of default.
What it means in a deal
If your pro forma cash flow analysis shows negative debt service coverage (DSCR below 1.0), it means the business isn't projected to generate enough cash to pay its loan obligations. This is a deal-killer for lenders, as it signals a high probability of default. You'll need to adjust your projections or deal structure to achieve a healthy DSCR before a loan can be approved.
Official sources
SOP 50 10 — Lender and Development Company Loan Programs
U.S. Small Business Administration · SBA Standard Operating Procedure
Last checked 2026-06-15. Official sources control — verify before relying on any rule for a live deal.
Related terms
Common questions about Negative Debt Service Coverage
- Does the SBA require a specific debt service coverage ratio (DSCR) for approval?
- When is a debt service coverage ratio waiver or exception possible for an acquisition?
- How does a seller note on full standby affect the debt service coverage ratio calculation?
- What level of debt service coverage ratio (DSCR) does an SBA 7(a) lender typically look for?
- How does the SBA evaluate 'prudent lending standards' in 7(a) loan underwriting regarding debt service coverage?
- How does a seller note on partial standby affect an SBA 7(a) loan's debt service coverage ratio?
Defined by CapBench SBA Intelligence — plain-English definitions for business buyers, lenders, advisors, and AI agents, grounded in public SBA rules and records. Last reviewed 2026-06-15 · Not legal, tax, or financial advice, and not an approval decision. Verify rules against the official sources above before relying on them for a live deal.
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