Debt Service Coverage Calculations in Underwriting

Calculating debt service coverage (DSC) is a fundamental building block of credit analysis (AKA how do we get paid back?). One of the most important concepts is that today’s loans are paid with tomorrow’s cash flow. In addition to the basic techniques of cash flow analysis, including traditional DSC versus UCA, this program will explore the items that must be considered when assessing a borrower’s ability to sustain adequate cash flow over the term of the loan. The emphasis will not only be on how to make the calculations, but also on making an appropriate decision about the type of analysis based on the expected loan repayment.

This presentation will also address the impacts of cash- vs. accrual-based accounting choices and how changes on the borrower’s balance sheet affect cash flow. It will cover the use of tax returns, internally prepared financial statements, and accountant-prepared financial statements in constructing accurate cash flow analyses.

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