What is Debt Service Coverage Ratio (DSCR)?
Debt Service Coverage Ratio (DSCR) is the amount of cash flow a company has to cover its debts over the period of one year. The ratio is the net operating income compared to the amount of debt being serviced including interest, principal, and lease payments. It has become a popular benchmark for determining a company’s approval for a loan. In smaller companies, the owner’s salary must be covered too. Lenders typically like to see a DSCR of 1.25 or higher.
OTHER TERMS BEGINNING WITH "D"
- Days Sales Outstanding (DSO)
Days Sales Outstanding (DSO) is a measure of the average number of days that a company takes to collect revenue after a sale has been made. DSO is often determined on a monthly, quarterly or annual basis and can be…
- Debt Consolidation
Debt consolidation combines multiple high-interest debts, such as credit cards, lines of credit or merchant cash advances, into a single monthly payment. Ideally, it’s used to lower the overall monthly payment of all debt along with decreasing the repayment period.…
- Debt Covenant
Debt covenants are restrictions that lenders (creditors, debt holders, investors) put on lending agreements to limit the borrower's actions (the debtor). In other words, debt covenants are agreements between a company and its lenders that the company will operate within specific rules set…
- Debt Financing
Debt Financing is when a company borrows money from a lender with the principal and interest being paid back in scheduled payments.
- Debt to Income Ratio (DTI)
Debt-to-income (DTI) ratio is a financial ratio that compares a borrower’s total monthly debt to their total monthly income, and is frequently used to evaluate a borrowers creditworthiness.
- Debtor-in-Possession (DIP)
Debtor in possession (DIP) is a term used in bankruptcy law to refer to a debtor (an individual or a company) that retains control of their assets and continues to operate their business while in the process of reorganizing under…
- Debtor-in-Possession Financing
Debtor-in-possession financing or DIP financing is a unique form of financing provided for companies in financial distress, typically during restructuring under corporate bankruptcy law (such as Chapter 11 bankruptcy in the US or CCAA in Canada). Usually, this debt is considered senior to all…
Deductions are funds subtracted from the customer (the account debtor) when paying a client’s invoice (other than discounts) and are typically unknown to the factoring company. If known to the Factor’s client they should be disclosed immediately.
- Deposit Account Control Agreement (DACA)
Deposit Account Control Agreement (DACA) is an agreement between a debtor, secure party and the debtors bank where the bank agrees that the secure party controls the deposit account of the debtor. This agreement is part of the Uniform Commercial…
Depreciation is used in accounting to calculate the decreased value of business assets over multiple years. Examples may include machinery, vehicles, furniture, computers and equipment. All of which lose value over time. Businesses depreciate these long-term assets for both tax…
- Depreciation & Amortization
Capital expenses are either amortized or depreciated depending upon the type of asset acquired through the expense. Tangible assets are depreciated over the useful life of the asset whereas intangible assets are amortized.
Dilution is comprised of discounts, chargebacks, credit memos, marketing allowances, end cap & slotting fees and other deductions that reduce the final payment amount against an Invoice.
- Dilution of Receivables
Dilution of receivables denotes the variance between the gross amount of invoices and the cash collected for such invoices. Factors such as bad debt write-offs, warranty returns, invoicing errors, trade discounts and returned goods all are involved in computing dilution.…
- Directional Boring Financing
Directional boring or directional drilling companies need financing as labor and equipment must be paid for immediately, but your customers can take 60-90 days to pay you. Invoice Factoring is a common financing option for directional boring companies.
A Discount is a reduction in the selling price of the merchandise as indicated by the "Terms of the Sale". There are two major types: An early pay or cash discount is an incentive for quicker payment from your B2B…
- Distress Cost
Distress cost refers to the expense that an organization in financial distress faces beyond the cost of doing business, such as a higher cost of capital. If additional capital is not acquired, distress costs may extend to the need to…
- Double Brokering
Double Brokering is the re-brokering of a load to another trucking company without the consent of the original shipper. This unauthorized activity violates the Federal Motor Carrier Safety Administration (FMCSA) legislation and is considered illegal. Additionally, this duplicitous activity leaves…
- Due Diligence
Due Diligence is researching a business and its owners in preparation for a business transaction. ACH and MCA lenders will have minimal due diligence and conversely, be the MOST expensive source of capital. A bank line will have the most…