Times Interest Earned (TIE) — also called the interest coverage ratio — measures how many times a company's EBIT can pay its interest obligations:
TIE = EBIT / Interest Expense
TIE Benchmarks
TIE
Assessment
≥ 5×
Strong coverage — comfortably serviceable
3–5×
Adequate — lender-acceptable for most loans
1.5–3×
Tight — approaching covenant limits
1–1.5×
Minimal — one bad quarter puts you at risk
< 1×
Cannot cover interest from operations
Why Lenders Care
TIE is a standard loan covenant metric. Most senior lenders require TIE ≥ 1.25–1.5×. A TIE of 3× means EBIT would have to drop 67% before interest payments become unserviceable.
TIE vs DSCR
TIE only covers interest, not principal repayment. For full debt service coverage including principal, use the DSCR Calculator. DSCR is stricter and more commonly used for real estate and project finance.
Complete guide to the Times Interest Earned ratio: formula, benchmarks, and how lenders use it to assess creditworthiness.
Times Interest Earned (TIE) Ratio
The Times Interest Earned (TIE) ratio — also called the interest coverage ratio — measures how many times over a company's operating profit (EBIT) can cover its annual interest payments.
TIE = EBIT / Interest Expense
A TIE of 3 means the company generates three times the operating income needed to pay its interest obligations.
Why Lenders Use TIE
TIE is a standard covenant in commercial lending agreements. Lenders use it to assess whether a borrower has enough operating cushion to absorb earnings volatility while still servicing debt.
Typical lending thresholds:
- Most commercial lenders: TIE ≥ 1.5×
- Investment-grade credit: TIE ≥ 3×
- Conservative balance sheets: TIE ≥ 5×
TIE vs Other Coverage Ratios
Metric
What It Covers
When to Use
TIE
Interest only
Fast solvency screen
DSCR
Interest + principal
Real estate, project finance
Fixed Charge Coverage
Interest + lease payments
Retail, lease-heavy businesses
Use the TIE Calculator to compute your coverage ratio and buffer.
Side-by-side comparison of Times Interest Earned and Debt Service Coverage Ratio — when to use each and what lenders prefer.
TIE vs DSCR: Key Differences
Both ratios measure debt serviceability, but they cover different obligations:
TIE
DSCR
Numerator
EBIT
Net Operating Income (NOI) or EBITDA
Denominator
Interest only
Interest + principal payments
Strictness
Less strict
Stricter
Common Use
Corporate finance
Real estate, SBA loans, project finance
When Each Is More Relevant
Use TIE when:
- Quickly screening a company's debt load
- Comparing leverage across corporate bonds
- Working with revolving credit facilities (no fixed principal schedule)
Use DSCR when:
- Analyzing a commercial real estate loan
- Evaluating an SBA 7(a) or 504 loan application
- Any loan with fixed amortization schedule
The Critical Difference
A company with TIE = 4× could still have DSCR < 1.0 if it has a large bullet payment due or significant principal amortization. Always check both when full debt service is involved.