What is Fixed Charge Coverage Ratio (FCCR)?
A broader coverage metric than DSCR that includes all fixed obligations — debt service plus lease payments, insurance, taxes, and other recurring costs.
Formula
FCCR = (EBITDA + Fixed Charges) ÷ (Fixed Charges + Debt Service)
Typical range
SBA lenders commonly use FCCR with a 1.15x minimum for 7(a) loans
Fixed Charge Coverage Ratio (FCCR) in commercial lending practice
FCCR is required by SBA underwriting standards (notably 7(a) and 504) and is increasingly used in C&I underwriting where lease obligations and other fixed costs materially impact repayment ability. FCCR captures total fixed obligation coverage, not just contractual debt — particularly important for borrowers with significant operating leases, equipment leases, or long-term insurance and tax commitments.
Worked example
Fixed Charge Coverage Ratio (FCCR) in numbers
Setup
An SBA 7(a) underwriting on a small distribution business. Trailing-twelve EBITDA is $620,000. Annual operating lease payments (warehouse, vehicles, equipment) total $145,000. Existing annual debt service is $180,000; the proposed SBA 7(a) loan adds $125,000 of annual debt service. SBA policy floor is 1.15x.
Calculation
Numerator = EBITDA + Lease Payments = $620,000 + $145,000 = $765,000
Denominator = Lease Payments + Total Debt Service = $145,000 + ($180,000 + $125,000) = $450,000
FCCR = $765,000 ÷ $450,000 = 1.70x
Interpretation
A 1.70x FCCR clears the SBA 1.15x floor with comfortable cushion. The underwriter notes that on a DSCR basis the same credit shows EBITDA of $620K against $305K of debt service for a 2.03x DSCR — the gap between DSCR and FCCR (2.03x vs 1.70x) is the lease obligation that DSCR ignores. On a borrower with material leases, the FCCR is the more conservative and typically the more relevant figure.
Variations by loan type
How Fixed Charge Coverage Ratio (FCCR) differs across CRE, C&I, and SBA
SBA 7(a)
FCCR is the SBA-required coverage metric on 7(a) loans, with a 1.15x floor under SOP 50 10. The calculation must include all fixed obligations: existing debt service, new SBA debt service, and contractual lease payments. SBA underwriting documentation must show the full FCCR build, not just the conclusion.
C&I with material leases
Banks increasingly use FCCR (alongside DSCR) on C&I credits where lease obligations are material to the operating cost structure — restaurants, retailers, distributors with leased warehouse space, equipment-intensive contractors. The FCCR catches obligations that an EBITDA-based DSCR can quietly miss.
Asset-light services
For asset-light services businesses (consultancies, software resellers, professional services) DSCR and FCCR converge because lease and other fixed obligations are immaterial. The credit memo can lead with DSCR and reference FCCR as confirming.
Further reading
Go deeper on Fixed Charge Coverage Ratio (FCCR)
Frequently asked
Fixed Charge Coverage Ratio (FCCR) FAQ
What is the SBA FCCR minimum?
SBA SOP sets a 1.15x FCCR minimum on 7(a) loans, calculated against the borrower's pro forma fixed obligations including the new SBA debt service. The standard practice is to demonstrate 1.15x or higher on at least two of the three most recent fiscal years, with the most recent year almost always required.
Should rent be included in FCCR?
Yes — contractual lease and rent obligations are the central addition that makes FCCR broader than DSCR. Both operating leases and capital leases (now finance leases under ASC 842) are included. Month-to-month leases that can be canceled with 30-60 days notice are sometimes excluded, but the credit memo should be explicit about what is in and out.
How does FCCR differ from DSCR?
DSCR measures cash flow against debt service only. FCCR adds lease payments to both the numerator (added back to EBITDA) and the denominator (added to debt service). On a borrower with no material leases, the two ratios converge. On a borrower with significant lease obligations, FCCR is materially lower and is the more conservative measure of repayment capacity.
Is FCCR required outside of SBA?
Not by regulation, but it is increasingly used as a best practice on any C&I credit where leases are a material fixed obligation. Many bank credit policies now require FCCR alongside DSCR on credits above a certain size or in lease-heavy industries. The trend reflects the post-ASC 842 reality that lease obligations are now on-balance-sheet and visible in a way they were not under prior accounting rules.
Related terms
Related concepts in commercial underwriting
DSCR (Debt Service Coverage Ratio)
The ratio of net operating income (or available cash flow) to total annual debt service, including principal and interest payments.
Read definitionSBA Loan (Small Business Administration)
A loan partially guaranteed by the U.S. Small Business Administration, reducing lender risk and enabling access to capital for small businesses that might not qualify for conventional financing.
Read definitionGlobal Cash Flow Analysis
An underwriting approach that consolidates the cash flows of all related entities and guarantors — not just the borrowing entity — to assess total repayment capacity.
Read definitionSee it in Aloan
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