Small business owners legally minimize IRS tax liability by writing off equipment, vehicles, and discretionary expenses. When automated underwriting divides that low Bottom-Line Net Profit by your proposed loan payment, your Debt Service Coverage Ratio (DSCR) drops below 1.25x.
Commercial credit policy permits adding back non-cash expenses (depreciation, amortization), interest, one-time capital outlays, and discretionary owner draws if documented in a formal EBITDA Reconciliation Schedule prior to underwriting submission.
Most commercial banks and SBA 7(a) lenders require a minimum Debt Service Coverage Ratio (DSCR) of 1.25x, though 1.15x is permitted on specific collateralized facilities.
No. Underwriters accept an explanatory EBITDA Add-Back Schedule that reconciles your tax return net income with actual operational cash flow.