Glossary
Interest cover ratio (ICR)
How many times earnings cover the interest bill alone, ignoring principal. A quick read on whether debt costs are strangling the business.
In plain English
The interest cover ratio divides earnings by the year's interest expense, ignoring principal repayments. It answers a narrower question than DSCR: even before the debt is being paid down, can this business comfortably afford the cost of carrying it?
Because it ignores principal, ICR is always the friendlier number of the two. A business can show a healthy ICR while failing DSCR, which is why lenders read them together rather than either one alone.
Why a lender cares
Credit teams commonly look for ICR of 2.0x or better, tested at the assessment rate. A thin ICR tells the assessor the business is vulnerable to rate rises even if the principal schedule is manageable today. Our worksheets test both ratios side by side, because that is how the bank reads them.
Where this term takes you
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