DSCR Explained for Maldivian SMEs: The Number Your Bank Checks First
What the debt service coverage ratio is, why Maldivian lenders anchor on 1.25x, how to calculate yours in MVR, and what to change when your projection falls short.
Key Takeaways
- DSCR = cash available for debt service ÷ annual loan repayment.
- 1.25x is the benchmark: MVR 1.25 of cash for every MVR 1 of repayment.
- Calculate it for every year of the loan — the worst year is the one that matters.
- If you fall short: borrow less, extend the tenor, or strengthen the revenue plan.
What DSCR measures
The debt service coverage ratio compares the cash your business generates to the loan payments it owes. A DSCR of 1.0x means you earn exactly enough to make the repayment — one slow month from trouble. A DSCR of 1.25x means you generate 25% more cash than the repayment requires, which is the cushion most lenders, in the Maldives and elsewhere, want to see.
The calculation: take your operating profit before depreciation (EBITDA), subtract cash taxes and the maintenance spending needed to keep operating, and divide by the year's total principal and interest. Do this for every year of the loan — a plan that covers comfortably in year 5 but dips to 0.9x in year 1 will be assessed on year 1.
A worked example in MVR
Suppose a café in Malé borrows MVR 600,000 over 5 years and the repayment comes to roughly MVR 150,000 per year. If the café projects MVR 210,000 in annual cash flow after operating costs and taxes, its DSCR is 210,000 ÷ 150,000 = 1.4x — a comfortable pass.
If projected cash flow were MVR 160,000 instead, the DSCR would be 1.07x. The business technically covers its payments, but a single bad quarter erases the margin. Most credit officers would ask for a bigger deposit, a smaller loan, or better numbers.
Three levers when your DSCR falls short
- Borrow less: a smaller principal cuts the repayment directly — fund the gap with owner equity or a phased rollout.
- Extend the tenor: spreading repayment over more years lowers each year's debt service, at the cost of more total interest.
- Strengthen revenue: raise the plan only if you can defend the assumption — more capacity, confirmed contracts, or evidenced demand.
Show the ratio before the bank calculates it
A repayment schedule and a year-by-year DSCR table in your business plan signals that you understand the lender's test — and lets you fix a weak year before a credit officer finds it. Funderly computes DSCR from your own financial model for every projection year, flags any year below 1.25x before you export, and recommends the specific loan size, revenue, or tenor change that would bring it back over the line.
