Arcvue
Debt and covenants—the ratio your bank tests you on
Whether the business makes enough cash to pay what it owes.
Debt service coverage is EBITDA over total debt service—principal plus interest for the period. Your loan agreement almost certainly sets a minimum, tests it quarterly or annually, and gives the bank remedies if you miss it. Arcvue computes it from your closed ledger and shows the headroom against that minimum before the test date, not after it.
EBITDA over principal plus interest, for the same period.
Basis a worked quarter at illustrative figures. Synthetic sample. At a covenant minimum of 1.25 this passes, and it passes by less than one bad month of EBITDA.
What a lender reads off the number.
| Coverage | What it means |
|---|---|
| Under 1.00 | Operations do not cover debt service. A breach for most lenders. |
| 1.00 to 1.25 | Barely covering. Any revenue dip puts you in breach. |
| 1.25 to 1.50 | The typical minimum covenant for a GovCon lender. |
| 1.50 to 2.00 | Comfortable. Room to absorb a contract loss or a delay. |
| Over 2.00 | Strong. Generating well beyond what the debt requires. |
Basis conventional lender bands. Your own covenant is whatever your agreement says.
Freeze the line of credit, raise the rate, or in a severe case accelerate the loan and demand repayment. None of those require the business to have stopped working—only the ratio to have moved.
Computed against the thresholds in your own agreement.
Debt & Refinancing holds the covenant terms and tests against them, recording whether each observation ran on a closed month or a projection—a forecast breach must never read as one that happened.