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Definition
Debt Service
The total annual principal and interest payments on an acquisition loan.
Definition
Debt service is the annual cost of servicing an acquisition loan — the sum of principal repayments and interest payments over a year. It is calculated using the PMT (payment) formula from the loan amount, interest rate, and loan term. BizBuyScore uses a fixed-rate amortising loan model with default assumptions of 60% LTV, 8.5% interest, and 7-year term (adjustable by admins).
Formula
Annual Debt Service = PMT(rate, nper, pv) = (Loan × rate × (1+rate)^n) ÷ ((1+rate)^n − 1)
Worked Example
A $300,000 loan at 8.5% over 7 years has an annual debt service of approximately $59,000.
Related Terms
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