Fixed Charge Coverage Ratio
A ratio measuring a business's ability to cover fixed obligations, such as debt payments, lease payments, and other recurring fixed costs, out of its operating earnings.
It’s calculated similarly to DSCR but casts a wider net, including fixed obligations like lease or rent payments alongside debt service, giving lenders a fuller picture of everything competing for a business’s cash before a new loan payment is added.
Lenders often set a minimum fixed charge coverage ratio, commonly around 1.25, as a loan covenant, meaning the business must maintain that cushion throughout the life of the loan, not just at the time of approval.
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