# Term Loan Debt Service

> The decision to take on debt in your business can be an accelerant or a burden. Meeting your debt obligations is a function of loan amount, financing rate, term length, and earnings available to service the payments. If your business has the cash-flow to comfortably cover the recurring payments, then this could be the "cheapest" form of liquidity you have access to. Be sure to account for all debt obligations when running this analysis.

Published model on Paths: https://getpaths.io/p/term-loan-debt-service
Values below are the base case of the published snapshot.

## Drivers

- Loan Amount: $1,000,000.00
- Annual Interest Rate: 6%
- Loan Term (years): 10
- Monthly Earnings: $35,000.00

## Formulas

- Monthly Payments = ( Loan Amount * ( Annual Interest Rate / 12)) / (1 - (1 + ( Annual Interest Rate / 12)) ^ (-( Loan Term (years) * 12))) -> $11,102.05
- Annual Debt Service = Monthly Payments * 12 -> $133,224.60
- Effective Interest Cost = ( Annual Debt Service * Loan Term (years) ) - Loan Amount  -> $332,246.02
- Annual Earnings = Monthly Earnings * 12 -> $420,000.00
- Debt Service Coverage = Annual Earnings / Annual Debt Service  -> 3.15
- Debt to Earnings = Loan Amount / Annual Earnings  -> 2.38