Calculator
Leverage ratio calculator: where your business sits against lender appetite
Every acquisition lender tests the same three ratios. Enter borrowings, cash, EBITDA, interest, scheduled repayments, capex and tax and the calculator returns net debt to EBITDA, interest cover and debt service cover, with an indicative band showing which funders would be comfortable at that level.
Net debt to EBITDA is borrowings less cash over EBITDA. Interest cover is EBITDA over interest. Debt service cover is EBITDA less capex and tax over interest plus scheduled repayments. Bands are indicative of UK market practice as of September 2026, not any lender's policy.
The ratios tell you where you sit; funders tell you what they will accept. We will map your numbers to the panel.
Why lenders test three ratios, not one
Leverage measures how much debt there is relative to earnings; it says nothing about whether the business can pay for it. Interest cover measures whether earnings meet the interest bill, which matters as rates move. Debt service cover measures whether cash, not earnings, meets interest and capital repayments after the business has paid its tax and reinvested. A business can pass leverage and fail cover if it converts little EBITDA to cash or carries heavy amortisation, which is why credit committees look at all three and set covenants on at least two.
Using the bands
The band under the leverage result maps your number to the corners of the market: bank senior debt, the upper end of bank appetite, unitranche and mezzanine territory, or highly leveraged. It is a description of market practice, not any lender's policy, and it moves with sector and size. For how the layers work read senior debt, unitranche debt and mezzanine finance, and for the formulas in depth the guide to leverage ratios and debt to EBITDA.
Leverage ratio questions, answered
How do you calculate debt to EBITDA?+
Total borrowings less cash, divided by EBITDA for the last twelve months. Lenders usually quote the net figure and set the leverage covenant on it. A business with £6 million of debt, £500,000 of cash and £2 million of EBITDA has net leverage of 2.75x.
What is a good interest cover ratio?+
EBITDA divided by interest of 3.0x or more is comfortable and is where most leveraged facility covenants are set; 2.0x to 3.0x is tight; below 2.0x is where lenders start to worry that a rate rise or a soft year leaves the business unable to pay interest from earnings.
What is the difference between DSCR and interest cover?+
Interest cover tests earnings against interest alone. Debt service cover tests cash flow after capex and tax against interest plus scheduled capital repayments, so it captures amortisation and is the tighter test on a bank term loan. A bullet facility from a debt fund has little scheduled repayment, so its DSCR looks stronger than an amortising bank loan at the same leverage.
What leverage will UK lenders accept?+
As of September 2026, banks are typically comfortable up to 2.5x to 3.5x net debt to EBITDA on senior debt; unitranche funds will go to 4.0x to 5.5x in a single tranche; above that is sponsor-backed or stressed territory. Sector, size, cash conversion and the equity cushion move the ceiling in both directions.
What is covenant headroom?+
The gap between the ratio the business is forecast to achieve and the level at which the covenant is breached, typically set at 20 to 30 percent on EBITDA. If the forecast leverage is 3.0x, the covenant might be set at 3.75x to 4.0x so a moderate shortfall does not trigger a default.