AfroRanking · Capital advisory
The debt service coverage ratio (DSCR) shows how many times your available cash flow covers the annual debt payment, interest and principal included. Below 1.0, the project cannot repay on its own. Target thresholds vary with the sector, the quality of revenue and the financing contract: ask your lender for theirs before you build the model.
Book a 60-minute bankability auditUpdated 21/10/2026 by the AfroRanking Capital Advisory team
What the debt service coverage ratio measures
The debt service coverage ratio is calculated as follows: DSCR = cash flow available for debt service ÷ debt service. Available cash flow (CFADS) is the cash the business generates after operating costs and taxes, before debt payments. Debt service is the interest and principal due over the same period.
A debt service coverage ratio of 1.0 means cash flow covers the instalments exactly, with no margin. Below 1.0, the business cannot repay by itself. A lender reads the ratio year by year, not only as an average. A debt service coverage ratio below the lender’s threshold stops most files.
CFADS
Cash flow available for debt service: the cash available to pay debt, after operating costs and taxes.
Debt service
Interest plus principal due over the period, per the amortisation schedule.
Covenant
A numerical undertaking in the loan contract, for example a minimum DSCR to meet every year.
Lock-up
A DSCR level below which distributions to shareholders stop, set above the default level.
A worked example of the debt service coverage ratio
A fictional SME borrows FCFA 150 million over 5 years at 8%, a rate chosen for the example. The annual instalment is 37.57. Its annual available cash flow is 50.
| Scenario | Available cash flow | Debt service | Debt service coverage ratio |
|---|---|---|---|
| Base case | 50.0 | 37.57 | 1.33 |
| Cash flow down 10% | 45.0 | 37.57 | 1.20 |
| Cash flow down 20% | 40.0 | 37.57 | 1.06 |
The same loan moves from 1.33 to 1.06 when cash flow falls by a fifth. At 1.06 the company pays its debt with no margin at all. A lender asks for this downside case before deciding. The numbers are fictional, in millions of FCFA, and represent no market.
Which debt service coverage ratio thresholds lenders apply
There is no universal threshold. A Forvis Mazars resource on project finance, dated 24 September 2026, gives these reference points:
- a common sizing target around 1.30x for infrastructure with contracted revenue;
- a range of 1.20x to 1.35x for contracted revenue with a strong counterparty;
- higher targets for revenue exposed to markets or commodities;
- a lock-up level below the target, and a default level lower still.
The page states that its lock-up (1.30x) and default (1.10x) figures are illustrative. These reference points describe infrastructure project finance. A bank lending to an SME applies its own grid: ask for it before you build the model. The financing contract sets the threshold that matters to you.
The five assumptions a lender tests before accepting a debt service coverage ratio
Volumes
How much do you sell or carry, under which contracts, and how much depends on a single customer?
Prices
Are your prices contracted, indexed or exposed to the market?
Costs
Do your variable and fixed costs resemble your past accounts?
Currency
Is your debt in the currency of your revenue? If not, who carries the exchange-rate risk?
Timing
When do you pay out and when do you collect? Working capital weighs on cash flow.
Model errors that cost a file
- Calculating the ratio on EBITDA rather than on cash flow after taxes and working-capital changes.
- Forgetting working capital or replacement capex.
- Misaligning the amortisation schedule and the collection calendar.
- Ignoring exchange-rate risk when debt is in foreign currency.
- Showing a single scenario, with no downside case.
- Mixing the company’s assumptions with those of the financed project.
What your model must show the lender
The lender wants to find, in the file, the amortisation schedule, the available cash flow line by line, the debt service coverage ratio for each year and its minimum, the sensitivities and the source of each assumption. Keep the model in your investor data room with its supporting documents. If your ratio falls below the threshold, several levers exist: a longer term, a larger contribution, a smaller amount, a partial guarantee, or a review of the choice between leasing and a loan.
The worked example of a Senegalese haulier applies this calculation to a five-truck fleet with three scenarios of falling cash flow. AfroRanking capital advisory covers building the model within an investment-readiness engagement.
Frequently asked questions
What minimum debt service coverage ratio does a bank require?
There is no universal answer. Forvis Mazars cites 1.20x to 1.35x for contracted revenue and about 1.30x in infrastructure. Your bank sets its threshold in the financing offer: ask for it in writing.
What is the difference between the debt service coverage ratio and the debt ratio?
The DSCR compares annual cash flow to annual instalments. A debt ratio compares debt to a stock, for example equity. A lender reads both.
Is the debt service coverage ratio calculated on EBITDA?
No. The numerator is the cash available for debt, after operating costs and taxes. EBITDA ignores taxes and working capital.
What if my debt service coverage ratio is too low?
Lengthen the term, increase the contribution, reduce the amount, negotiate a partial guarantee or revisit your price and volume assumptions. Each lever changes debt service or cash flow.
Does an SME need a full Excel model?
A clear spreadsheet is enough if the lender can follow the assumptions, amortisation, cash flow and scenarios. Formulas must stay readable.
Which sensitivities does a lender ask for?
A fall in volumes, a fall in prices, a rise in costs and a collection delay. Each scenario shows the debt service coverage ratio for every year.
Sources and references
- Forvis Mazars, resource on the DSCR in project finance: page dated 24 September 2026.
- AFD, ARIZ brochure: guaranteed loan terms of 2 to 12 years for SMEs (file from 2017).
- BCEAO, report on banking conditions in the WAEMU in 2025: average lending rates, September 2026.
Go further
Six scored axes and a roadmap
The bankability audit, before you look for a financier.
A guarantee to lift the ratio
A lever when collateral is missing.
Financing a truck fleet: a worked example
The calculation applied to a fictional haulier.
Investor data room
Where to keep the model and its supporting documents.
The numbers in the example are fictional. AfroRanking advises and structures. AfroRanking does not collect funds, place securities or guarantee any financing outcome. The decision to lend or invest belongs to the financier, and the decision to sign belongs to you.