DSCR (Debt Service Coverage Ratio)
DSCR, or debt service coverage ratio, is cash flow available for debt service divided by the required principal and interest payments. Lenders use it to test whether a business can carry the loan with a margin for error.
Why DSCR Matters in a Laundromat Sale
DSCR is the single number that most often decides whether a laundromat acquisition gets approved. Lenders compute it from cash flow after a market-rate owner's salary and after any add-back they refuse to accept, which is why documentation quality translates directly into approvability. A store that clears the ratio on the seller's add-back schedule and fails on the lender's is a deal that dies in underwriting.
Example
SDE of $132,000, less a $55,000 replacement salary for the owner, leaves $77,000 against annual debt service of $58,000. DSCR is 1.33. Strike a $9,000 unsupported add-back and it falls to 1.17, which many lenders will not approve without additional injection or collateral.
What to Check
- Compute coverage after a market-rate salary for whoever will run the store.
- Recompute it with every add-back the lender is likely to strike.
- Test what a 10% and a 20% revenue decline do to the ratio.
Where This Comes Up
- How Lenders Underwrite Laundromats: The Credit File, Item by Item
- Laundromat ROI and Cash-on-Cash Return: Doing the Math Correctly
- Laundromat Add-Backs Explained: What Survives Buyer Scrutiny
Related Terms
- Cash-on-Cash Return — Cash-on-cash return is annual pre-tax cash flow after debt service divided by the total cash a buyer actually invested
- SBA 7(a) — SBA 7(a) is the U.S. Small Business Administration's primary loan guaranty program
- Breakeven — Breakeven is the revenue level at which a laundromat covers all of its costs
- QoE (Quality of Earnings) — QoE, or quality of earnings
See the full laundromat glossary for all 78 terms.
The Next Step
This page is general information about laundromat transactions, not legal, tax, or investment advice, and not a guarantee of sale price, timing, or financing approval. Verify current rules with your own CPA, attorney, lender, and the relevant state or municipal agency before acting.