Coverage is the single number every program watches — but the programs define it differently, and the definitions decide deals.
Debt service coverage ratio is deceptively simple: cash available for debt service divided by debt service. Every word in that sentence is a convention. SBA practice under SOP 50 10 looks for 1.15x operating coverage and 1.00x global coverage — the global test sweeping in the guarantors’ personal cash flows and obligations. USDA practice under 7 CFR 5001 defines coverage on an EBITDA basis less reasonably expected replacement capital expenditures — a definition with teeth, because it forces capex reserves into the numerator’s calculation rather than letting depreciation games inflate coverage. Conventional credit policies typically require 1.20x or better.
The replacement-capex adjustment deserves more respect than it gets. An RV resort, a hotel, a car wash — these assets consume themselves on a schedule, and a pro forma that shows 1.45x coverage while reserving nothing for the roof, the tunnel equipment, or the FF&E cycle is showing a number that will not survive year six. Wert-Berater models reserves explicitly and reports coverage both ways, so the underwriter sees the difference.
Programs state minimums as single ratios; projects live them as a curve. Year-one coverage on a ground-up project is the binding constraint — a study showing 2.7x stabilized coverage and 1.05x in the first full year has identified its own condition precedent. Our recent practice spans that curve: a Texas RV resort at 2.758x in year three, an event venue exceeding 3.4x on a conservative facility, and component-financed structures where one component covers at 8.38x while its sibling runs 1.50x — each reported as a ten-year trajectory under base and stressed cases.
When coverage is tight, structure is the honest remedy: interest-only periods sized to the ramp, reserves funded at closing, or a smaller facility. The study’s job is to say so plainly.
President, Wert-Berater, Inc. — independent feasibility study consultants since 1998. More than 4,000 feasibility studies completed across all 50 states and internationally, evaluating $40.2 billion in project value for SBA, USDA, EB-5, conventional, and institutional financing decisions. Fiduciary duty runs to the lender and agency in every engagement.
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