# What debt service coverage does a 504 loan require?

**Short answer:** At least 1.15:1, calculated on the last fiscal year or the average of the last two. Source: SOP 50 10 8.1, Sec. C, Ch. 1, Para. E.1.d. If history falls short, the Certified Development Company (CDC) must analyze projections.

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Last checked: 2026-11-08

A 504 loan requires a debt service coverage ratio of at least 1.15:1 (SOP 50 10 8.1, Sec. C, Ch. 1, Para. E.1.d; Para. E begins p. 242). That matches the Standard 7(a) floor of 1.15:1.

## How it is calculated

The ratio is operating cash flow, defined as earnings before interest, taxes, depreciation and amortization (EBITDA), divided by combined debt service after the transaction. The CDC must assume interest-only payments on fully drawn lines of credit.

The CDC must make prudent adjustments and prepare a global cash flow. Common adjustments are rent, unfunded capital expenditures, non-recurring income, distributions, S corporation tax distributions and owner compensation.

## When history falls short

The CDC must analyze projections instead:

- At least 2 years of projections.
- Support for assumptions such as sales growth or expense cuts.
- A comparison to current industry trends.
- Proof of liquidity if repayment appears in Year 2 but not Year 1.
- An explanation of how interest and operations are paid during construction.

## Income that does not count

- Outside income, such as a spouse's income, can offset personal expenses. It cannot be added to business cash flow (Para. E.1.g).
- Projected rent from the project property may appear in the global cash flow. It cannot be included in the repayment analysis.

## Recent numbers

The application needs a balance sheet and income statement dated within 120 days before submission to SBA.

## Sources

- [SOP 50 10 8.1, Sec. C, Ch. 1, Para. E.1.d (Para. E begins p. 242)](https://legacy.sba.gov/sites/default/files/2026-10/SOP%2050%2010%208.1%20Technical%20Policy%20Updates%20effective%20%2010.1.2026.docx)
- [SOP 50 10 8.1, Sec. C, Ch. 1, Para. E.1.g (Para. E begins p. 242)](https://legacy.sba.gov/sites/default/files/2026-10/SOP%2050%2010%208.1%20Technical%20Policy%20Updates%20effective%20%2010.1.2026.docx)
- [SOP 50 10 8.1, Sec. B, Ch. 1, Para. C (p. 118)](https://legacy.sba.gov/sites/default/files/2026-10/SOP%2050%2010%208.1%20Technical%20Policy%20Updates%20effective%20%2010.1.2026.docx)