FCCR Simulator.
Test the covenant before the bank does.

Why FCCR, Not Just DSCR

DSCR — debt service coverage ratio — only counts interest and scheduled principal. That works fine for a mortgage on owned real estate, but it badly understates the debt-like burden of a company that leases its space, vehicles, or equipment. A retail tenant signing a 10-year lease has just as much fixed monthly obligation as a homeowner with a mortgage; if you ignore rent in the coverage test, you're under-covering the borrower.

FCCR fixes the asymmetry by using EBITDAR — earnings before interest, taxes, depreciation, amortization, and rent — over total fixed charges including rent. A lessee and an owner with identical economics produce the same FCCR. That's why every middle-market term loan and most SBA 7(a) packages with material lease exposure use FCCR rather than plain DSCR.

The Covenant Formula, Annotated

            EBITDA + Rent − Cash Taxes − Unfinanced Capex − Distributions
   FCCR  =  ──────────────────────────────────────────────────────────────
                  Interest + CPLTD + Capital Lease Principal + Rent

• EBITDA — earnings before interest, taxes, depreciation, amortization. Pull from the audited or tax-return P&L.
• + Rent — add operating lease expense back to neutralize the lease/own asymmetry.
• − Cash Taxes — actual taxes paid in the period, not book tax expense.
• − Unfinanced Capex — capital spending net of any equipment loans, leases, or grants that financed it.
• − Distributions — dividends and owner draws. Treats the owner's pull as a fixed obligation, because in practice it is.
• + Interest — cash interest expense on all funded debt.
• + CPLTD — current portion of long-term debt, i.e., scheduled principal coming due in the next 12 months.
• + Capital Lease Principal — the principal portion of finance-lease payments. The interest portion is already in cash interest above.
• + Rent — same operating lease expense from above. Appears on both sides; that's the whole point.

Reading the Headroom Outputs

Once the ratio is calculated, the more useful question is: how much room do I have before I trip the covenant? The simulator solves three independent ceilings:

• Distributions ceiling — the maximum annual distributions you can take with everything else held constant before FCCR drops to the covenant level. Useful for year-end planning when the question is "how much can I pull out in December?"
• Capex ceiling — same idea applied to unfinanced capital spending. If you're considering a major equipment upgrade out of operating cash, this is your ceiling.
• Interest ceiling — what the maximum sustainable interest expense is at your current EBITDA. Useful when refinancing into a higher-rate facility or considering an additional draw on a revolver.

Watchlist: The 10% Buffer

Most credit officers don't wait for an actual breach to start tightening. If your trailing FCCR drops within 10% of the covenant — say, 1.32x against a 1.20x trigger — expect a phone call. The simulator flags that zone so you can see it coming. Standard responses include reducing distributions, deferring discretionary capex, or accelerating receivables collection.

Common Modeling Mistakes

1. Confusing EBITDA and EBIT. EBITDA adds back D&A; EBIT does not. The covenant always uses EBITDA. If your trial balance gives you EBIT, add depreciation and amortization back from the cash flow statement.
2. Counting tax expense instead of cash taxes. A pass-through entity may owe little or no entity-level tax even with strong income. Use cash actually paid.
3. Forgetting financed capex. Only the unfinanced portion belongs in the FCCR numerator. Equipment financed through a separate term note is already captured in CPLTD.
4. Mixing operating and capital leases. Operating lease expense (rent) goes to both sides of the ratio. Capital lease payments split: interest into the interest line, principal into the capital lease principal line. ASC 842 changed the GAAP presentation; the FCCR formula didn't.
5. Using gross distributions. Some agreements net out distributions used to pay owner-level taxes on pass-through income. Read the definitions section.

Related Tools and Reading

• Global Cash Flow Calculator — for borrowers where the personal guarantee is doing real work.
• CCC & LOC Sizer — when the covenant package includes a borrowing-base revolver.
• Business Term Loan Calculator — model the proposed loan's annual P&I before plugging it into CPLTD.
• Commercial Real Estate Calculator — for the balloon/amortization piece on owner-occupied real estate.
• DSCR vs. FCCR — When Each Applies