Senior debt financing: how lenders size a loan (leverage, DSCR, LTV and covenants)

bIAnk AI Research · 2026-11-01 · 8 min

How banks and private credit funds decide how much a company can borrow: net debt/EBITDA, DSCR, LTV, amortisation profile, covenants and what to prepare before asking for financing.

Lenders size debt on cash flow

A lender's first question is not what the company is worth but how reliably it can pay interest and principal. Corporate senior debt is sized as a multiple of normalised EBITDA and then tested against the cash flow available for debt service.

Leverage: net debt / EBITDA

Net debt divided by EBITDA tells the lender how many years of EBITDA the debt represents. For mid-market senior bank debt, total leverage of roughly 2.5x–3.5x is common; private credit and unitranche can go higher at a higher margin. Stable, contracted revenue supports more leverage than cyclical revenue.

DSCR: can the business pay?

The debt service coverage ratio divides the cash flow available for debt service by the interest and principal due in the period. Lenders typically set a minimum DSCR covenant around 1.20x–1.30x and size the amortisation profile so the base case stays comfortably above it.

A bullet or balloon repayment improves DSCR during the life of the loan but moves the risk to refinancing at maturity, so lenders test that too.

LTV for asset-backed and real estate finance

When the loan is secured on real estate or other assets, the loan-to-value ratio caps the amount relative to an independent appraisal. Lower LTV means more equity cushion and better pricing; development and hotel assets usually carry lower LTVs than stabilised logistics or residential.

Covenants and what they mean in practice

Financial covenants (maximum leverage, minimum DSCR, sometimes maximum capex) are tested periodically. Build headroom of at least 20%–25% against your base case; a breach does not automatically mean default, but it hands negotiating power to the lender.

What to prepare before asking for financing

Lenders move faster when the credit story is ready.

Three years of audited or closed accounts and current-year management accounts.
Normalised EBITDA with a reconciliation to the statutory accounts.
A five-year plan with cash flow, capex and working capital, and a downside case.
Existing debt schedule, security and covenants.
Use of proceeds and the proposed structure (amount, tenor, amortisation).

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