You’re profitable on paper, yet the bank asks for EBITDA, DSCR and a covenant pack. Which number are they really judging, and how do you present your figures so you don’t undersell your business? If you’ve searched “EBITDA UK small business”, this guide explains what lenders actually look at, in plain English, with a worked example and a quick calculator.

Straight answer: Many UK lenders lean on EBITDA to judge affordability (think Debt/EBITDA, interest cover, DSCR). Calculate it cleanly, reconcile it to your statutory numbers, and show a normalised view that strips out one-offs. British Business Bank

Quick comparison (no jargon)

Heights tip: Labels aren’t enough. Always reconcile any adjusted/“normalised” EBITDA back to the profit in your accounts and explain each adjustment. UK regulators and professional bodies warn not to let APMs overshadow GAAP; define and reconcile clearly. FRC (Financial Reporting Council)

Plain-English definitions

• Operating profit (FRS 102) – a subtotal in your profit and loss account that shows trading performance before financing and tax. Under FRS 102 it isn’t required; if you present it, it must represent activities normally regarded as operating. BDO
• EBIT – Operating profit before interest and tax.
• EBITDA – EBIT plus Depreciation & Amortisation. UK small-business guidance notes banks often use EBITDA to assess ability to repay. British Business Bank

What’s changing (IFRS context)

If you report under IFRS (e.g., you’re part of a group), IFRS 18 (effective for periods beginning on/after 1 January 2027) defines income-statement subtotals (including operating profit) and introduces disclosures for management-defined performance measures, nudging everyone toward clearer, more comparable presentation. Even if you use FRS 102, adopting the same clarity in management packs helps lenders compare and trust your numbers. IFRS Foundation

(Background: FRS 102 is the standard that applies to entities not using adopted IFRS/FRS 101/FRS 105.) FRC (Financial Reporting Council)

Why lenders keep coming back to EBITDA

• Affordability lenses. Debt/EBITDA, interest cover and (in cashflow lending) DSCR all anchor on sustainable operating cash generation. UK small-business guidance from the British Business Bank discusses EBITDA directly in this context. British Business Bank
• Comparability. EBITDA removes non-cash D&A and financing choices, so lenders can compare borrowers more easily.
• But context matters. Asset-heavy businesses with high maintenance capex shouldn’t hide behind a big EBITDA; explain the capex run-rate in your commentary and forecasts.

Normalisations: show the repeatable earning power

Typical UK service-SME adjustments:

• One-offs: legal dispute costs, a one-time recruitment blitz, systems migration.
• Owner/related-party items: director salary below market; personal costs through the business, normalise to a market package.
• Non-recurring income: grants or discontinued lines.
• Accounting noise: impairments, FX spikes, fair-value swings.

How to present it:
Use a one-page reconciliation from reported EBIT/EBITDA to normalised figures and keep GAAP front-and-centre. UK reviews of APMs emphasise clear definitions, reconciliations and not giving APMs greater prominence than GAAP. FRC (Financial Reporting Council)

Recap (keep it tight): Adjust one-offs; align owner pay; remove non-recurring income; reconcile to GAAP.

Worked example: from reported to normalised (service SME, £2.4m revenue)

Reported P&L (year)

• Revenue: £2,400,000
• Direct costs (COGS): £840,000
• Gross profit: £1,560,000
• Operating expenses (ex-D&A): £1,200,000 (includes £30k legal one-off and £40k recruitment blitz; director salary £36k)
• Depreciation: £60,000
• Amortisation: £0
• Other operating income (non-recurring grant): £20,000

Reported results

• EBIT (Operating profit): £1,560,000 − £1,200,000 − £60,000 + £20,000 = £320,000
• EBITDA: £320,000 + £60,000 = £380,000

Normalisations

• Add back one-offs (legal £30k + recruitment £40k): +£70,000
• Remove non-recurring income (grant): −£20,000
• Align director pay to market (say £80k market vs £36k paid): −£44,000

Normalised results

• Normalised EBIT: £320,000 + 70,000 − 20,000 − 44,000 = £326,000
• Normalised EBITDA: £380,000 + 70,000 − 20,000 − 44,000 = £386,000

Covenant lens (illustrative): if annual debt service were £300,000, DSCR (using an EBITDA-style proxy) would be ~1.27× reported and ~1.29× normalised. (DSCR definitions vary by lender; always use their definition in your pack.) 365 Finance UK

Red flags in management accounts that spook lenders

• EBITDA rising while cash conversion (AR days, accrued/deferred income) worsens.
• Large “exceptional” lines every year (not really exceptional).
• Capitalising day-to-day costs to boost EBITDA.
• VAT/PAYE arrears or penalties alongside “strong EBITDA.”
• Missing bank recs or unexplained swings in accruals/prepayments.

For a robust close and tidy reconciliations, see Management accounts in seven working days (clean AR/AP ageing, VAT control, payroll journals, and balance-sheet reconciliations).

What to send a lender (checklist)

• Last 12 months management pack with commentary.
• EBIT/EBITDA calculations with a one-page normalisation reconciliation back to your P&L.
• AR/AP ageing, bank recs, VAT control account status.
• Forecast (P&L, cash, balance sheet) with covenant calculations under their definition.
• Capex schedule (maintenance vs growth).
• Sensitivity (e.g., −10% revenue, +10 days AR).

Book a 20-minute planning call, we’ll review your numbers, build a clean EBIT/EBITDA reconciliation, and prep a lender-ready pack.
Prefer DIY first? Use our Lender Readiness Checklist; we’ll sense-check it with you on the call.

How do I calculate normalised EBITDA (UK)?

1. Start with EBITDA (operating profit + depreciation + amortisation).
2. Add back clearly identified one-off costs (e.g., a one-time legal dispute).
3. Remove non-recurring income (e.g., a grant or disposal gain).
4. Align owner pay to a market package (adjust up/down as needed).
5. Present a reconciliation back to GAAP with short explanations for each line. FRC (Financial Reporting Council)

What DSCR do lenders want for UK small businesses?

It varies by lender, sector and product. DSCR simply asks if operating cash flow comfortably covers debt service (interest + principal). Lender guides in the UK use DSCR alongside EBITDA or cash-based metrics when assessing applications. Ask your lender for their exact definition and target range, then mirror it in your pack. 365 Finance UK

Mini calculator

FAQs

Do UK banks prefer EBITDA or EBIT?
Many UK lenders use EBITDA as a core affordability metric (e.g., Debt/EBITDA, interest cover) when assessing ability to repay. Always check your lender’s exact definition and reconcile your numbers. British Business Bank

Is “operating profit” required under FRS 102?
No. Under FRS 102, operating profit is not required; if you present it, it must represent activities normally regarded as operating. Classification really matters. BDO

What’s the impact of IFRS 18 — does it affect me?
IFRS reporters will have defined subtotals like operating profit from 2027 and new disclosures for management-defined performance measures. Even if you’re on FRS 102, adopting this clarity in your pack helps lenders compare and trust your numbers. IFRS Foundation

Should I show “normalised” EBITDA in my lender pack?
Yes, if you clearly reconcile it to your GAAP numbers and explain each adjustment. Keep statutory figures prominent and the reconciliation clear. FRC (Financial Reporting Council)

Your Next steps

Book a 20-minute planning call, we’ll review your numbers, build a clean EBIT/EBITDA reconciliation, and prep a lender-ready pack.