Debt Capacity Calculator

Debt capacity is the maximum amount of debt a business can take on while maintaining healthy financial ratios and meeting lender requirements. It's typically calculated based on EBITDA multiples, asset values, and cash flow coverage ratios.

Lenders typically use multiple approaches: EBITDA-based lending (applying leverage multiples like 2-4x EBITDA), asset-based lending (advancing against receivables and inventory), and cash flow analysis (ensuring debt service coverage ratios above 1.25x).

Small and medium enterprises typically see leverage ratios of 2-4x EBITDA for senior debt. The exact multiple depends on industry, company size, profitability consistency, and asset base. Stronger companies can access higher leverage.

Debt covenants are financial conditions borrowers must maintain. Common covenants include maximum leverage ratios (Debt/EBITDA), minimum interest coverage ratios, and debt service coverage ratios. Breaching covenants can trigger default provisions.