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Debt service
Also called annual debt service, ADS.
The principal and interest a business is contractually required to pay on its borrowings over a period, normally expressed annually.
Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.
What it means
Total debt service is the sum of scheduled payments across every facility for the period being measured. Existing debt service covers what is already in place; pro forma debt service adds whatever is being applied for. Underwriters compare it against cash flow to produce a coverage ratio.
The measurement is contractual, not actual. It counts what is due, not what was paid, and it counts a full year of a facility that closed in November. Interest-only periods and balloons distort it, which is why careful analysts recast a balloon as if it amortized.
Capital lease payments count. Operating lease payments generally do not, though a lender looking at a business whose equipment is entirely leased will make its own adjustment.
Where this one catches people
Merchant advances produce no debt service line because they are structured as purchases with no principal, no interest and no maturity. A coverage ratio computed straight off the debt schedule can therefore look healthy while the operating account is being drained every morning. Lenders who know this market add the remittances back in; a business assessing its own capacity should do the same.
Worked through
A business shows $95,000 of annual loan and lease payments on its debt schedule and also remits $1,100 a week across two advances. Measured conventionally, debt service is $95,000. Measured by what actually leaves the account, it is $95,000 plus $57,200, or $152,200. A coverage calculation built on the first number describes a different company from the one operating the bank account.
Figures in the example are illustrative. They show the arithmetic, not a quote — what any one lender would charge is on that lender's page, where it is published at all.
Where you will meet this term
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Debt service — common questions
What does debt service mean?
The principal and interest a business is contractually required to pay on its borrowings over a period, normally expressed annually.
Where does debt service catch people out?
Merchant advances produce no debt service line because they are structured as purchases with no principal, no interest and no maturity. A coverage ratio computed straight off the debt schedule can therefore look healthy while the operating account is being drained every morning. Lenders who know this market add the remittances back in; a business assessing its own capacity should do the same.
Is debt service the same as an interest rate?
Debt service is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.
Which products does debt service apply to?
Term Loan, Business Line of Credit, SBA Loan, Equipment Financing.
Is there a worked example of debt service?
Yes, on this page, and it is labelled illustrative. It shows the arithmetic, not a quote from any lender.
What else should I read alongside debt service?
Amortization, Balloon payment, Daily remittance, Debt schedule, Debt service coverage ratio.
Has this definition been checked?
Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.
Is this legal advice?
No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.
Can I suggest a term?
Yes — [email protected]. The glossary grows from what people are actually shown in contracts.