Businesses require cashflow to keep the operation going. It is not necessary for a business to have all the resources at hand. These are known to seek loans to fill the gap in the resource. But at the end of the day, every business has to pay all the loans off. A business that needs to apply for another loan for financing a new project must think if they can really afford paying off the new one along with the past ones. DSCR is the ultimate key that measures the ability of a business to repay its loans.
Debt to equity ratio and debt to total assets ratio along with DSCR Loan is capable of measuring the debt capacity. It is one of the indicators of financial health of a business and every business owner must be aware of it. Investors and bankers use it to understand the prospects and creditworthiness while business owners can use it to evaluate the business’s financial capability to fund future ventures.
Mistakes to avoid while calculating DSCR
Calculating DSCR is not exactly an easy thing. Many people fail to calculate it properly because of some mistakes. One of the first mistakes that people make is errors in calculating principal amount. Income statements do not get its place in income statements. The amount that outstanding on loans is what we get on income statements. That is why an interna system is necessary that will keep track of principal payments properly. Having separate repayment schedule for each of the loans is something that can help in keeping the details from getting lumped together. One can also use a bookkeeper so that the calculations never go wrong. Once you get proper result, you can work better on the new finances and properly work on the new projects.
