EBITDA isn't cash available for debt
Lenders often start from EBITDA, but you can't spend all of it on loan payments. Subtract taxes, a fair owner salary if it isn't already in expenses, essential capital spending and any distributions you need. What's left is what can actually service debt.
Add a cushion
Lenders commonly want 1.20x–1.35x coverage or more; every lender sets its own standard. Divide your cash available by your target coverage to get the most you can pay each year. Then the rate and term turn that payment into a loan amount.
Worked example
$400,000 EBITDA, less $60,000 taxes, $40,000 capital spending and $20,000 distributions = $280,000 available. At 1.30x coverage that supports about $215,000 a year, or $17,900 a month. At 9% over 10 years, that's roughly a $1.4 million total debt load — including any existing loans.
Then stress it
Rerun the math with revenue down 15–20% and the rate up 2 points. If the loan only works in the good case, borrow less or extend the term.
Estimates only. Results vary. No guarantee of approval, rates or savings.
Examples use hypothetical numbers. Educational content, not financial, legal or tax advice. Profit Theory is not a lender; lenders set their own requirements and make all credit decisions.