Earnings before interest, taxes, depreciation and amortization: a business's operating profit before financing costs, income taxes and non-cash charges.
EBITDA starts with net income and adds back interest, income taxes, depreciation and amortization. Lenders use it as a quick stand-in for the cash a business produces before it pays its lenders. The FDIC’s examination manual calls it the usual proxy for cash flow in coverage tests, and lists debt tests built on it, such as total debt divided by EBITDA.
Example: a company reports net income of $180,000 after $60,000 of interest, $40,000 of income taxes, $90,000 of depreciation and $10,000 of amortization. EBITDA is $380,000.
Two cautions. EBITDA is not cash in the bank: it ignores equipment the business must replace, taxes it must pay and money tied up in receivables and inventory, which is why some loan agreements test fixed charge coverage instead. And the figure a lender uses is often adjusted. An underwriter may add back a one-time expense or an owner’s pay above a market salary, and may take out income that will not repeat. Show each add-back with its proof, because an adjustment a lender cannot verify will not count.
How it shows up in the data here
Not in any public file. Call reports, credit union filings and SBA loan rows carry no borrower earnings, so nothing on a lender page here shows EBITDA. For a business loan request, work out your coverage in the DSCR calculator using EBITDA as the cash flow figure, and state your add-backs on the deal summary.
Go further
- DSCR calculator: Coverage from cash flow and loan terms you enter.
- Deal summary builder: A one-page summary with your cash flow and add-backs stated.
- DSCR calculator: Cash flow over debt service. Type the cash flow and the loan terms, see the ratio and the cushion before it falls to 1.00x.
- Deal summary builder: Turn the facts of a deal into a clean one-page summary you can copy or print. Nothing is saved or sent.
- How bankers evaluate a commercial loan deal: A credit officer asks one question five ways: how will this loan be repaid, and what happens if it is not? Knowing the five tests lets you size a request before you send it.
- Global cash flow, explained step by step: A property can cover its loan while the people behind it cannot cover their other debts. Global cash flow is the test that looks at all of it at once.
Related terms
- Debt service coverage ratio (DSCR): Net operating income, or business cash flow, divided by the loan payments due in a year. It shows how many dollars come in for each dollar of debt service.
- Fixed charge coverage ratio (FCCR): A business's earnings before interest, taxes, depreciation and amortization, divided by its fixed charges such as debt payments, capital spending and cash taxes.
- Global cash flow: The combined cash flow of a borrower, its owners and their other businesses, set against all of the debt payments those same parties owe.
- Net operating income (NOI): A property's annual income minus its operating expenses, before loan payments, income taxes and depreciation. It is the top number in DSCR and debt yield.
- Loan covenant: A promise in a loan agreement that the borrower will do certain things, or will not, for as long as the loan is outstanding, such as keeping a minimum debt service coverage ratio.
- Debt schedule: A table of every loan a business or borrower owes, showing for each the lender, balance, payment, maturity date and collateral.
- Working capital: The money a business has tied up in day-to-day operations, measured as current assets minus current liabilities; a working capital loan funds that gap.
Sources
Plain definitions for orientation, not legal, tax or credit advice. A lender's own policy decides what it will do.