Fixed-Charge Coverage Ratio in Australia: 2025 Guide

In the world of business finance, numbers tell a story. For Australian business owners navigating economic uncertainty and rising interest rates in 2025, one number is more important than ever: the fixed-charge coverage ratio (FCCR). This ratio offers a comprehensive snapshot of your company’s ability to cover its fixed financial obligations—beyond just loan repayments. Whether you’re seeking bank finance, negotiating leases, or simply safeguarding your cash flow, understanding your FCCR could be the difference between smooth sailing and financial turbulence.

What Is the Fixed-Charge Coverage Ratio?

The fixed-charge coverage ratio measures a business’s ability to meet all its fixed financial charges—such as interest, lease payments, and loan principal repayments—out of its earnings before interest, tax, depreciation, and amortisation (EBITDA). The formula is:

• FCCR = (EBITDA + Fixed Charges) / (Fixed Charges + Interest Expenses)

Unlike the simpler interest coverage ratio, the FCCR accounts for both debt payments and other recurring fixed costs, giving a more holistic view of financial health. In 2025, with many Australian SMEs facing rising rent and equipment leasing costs, this ratio is under greater scrutiny from lenders and investors.

Why Does FCCR Matter in Australia in 2025?

The Reserve Bank of Australia’s ongoing monetary tightening has pushed borrowing costs higher, and commercial landlords are passing inflation-linked rent increases onto tenants. For businesses, this means fixed charges are eating up a larger chunk of revenue. Here’s why the FCCR is crucial right now:

• Bank Lending Requirements: Major banks and non-bank lenders have updated their lending policies in 2025 to require a minimum FCCR—often 1.25 or higher—for new business loans, refinancing, or asset finance.

• Lease Negotiations: With commercial rents climbing in Sydney and Melbourne, landlords are using FCCR to assess tenant stability before approving new or renewed leases.

• Investor Confidence: Investors and private equity firms are increasingly demanding transparency on fixed-charge metrics as part of due diligence for mergers and acquisitions.

Example: A Brisbane manufacturing business with $500,000 EBITDA, $100,000 annual lease payments, and $50,000 annual loan interest would have an FCCR of (500,000 + 100,000) / (100,000 + 50,000) = 4.0. That’s well above most lender minimums, indicating strong financial resilience.

How to Improve Your Fixed-Charge Coverage Ratio

If your FCCR is below your lender’s threshold, or if you want to future-proof your finances, consider these strategies:

• Increase EBITDA: Focus on boosting operational efficiency, raising prices strategically, or expanding sales channels. Even a modest EBITDA lift can improve your ratio.

• Restructure Debt: In 2025, many banks are offering debt consolidation or refinancing packages. Spreading repayments over a longer term can reduce annual fixed charges.

• Negotiate Lease Terms: With vacancy rates still elevated in some sectors, commercial tenants have leverage. Negotiate for rent reductions or incentives to lower your fixed charges.

• Review Unnecessary Fixed Costs: Audit all recurring expenses—like underused equipment leases or old service contracts—that inflate your fixed-charge base.

Real-world tip: A Melbourne retail chain improved its FCCR from 1.1 to 1.4 by renegotiating store leases and switching to a hybrid rent model, impressing their bank enough to secure a larger overdraft facility in 2025.

Fixed-Charge Coverage Ratio Benchmarks in 2025

What’s a “good” FCCR? While benchmarks vary by sector and lender, here’s what’s common in Australia this year:

• Lenders: Most Australian banks require an FCCR of at least 1.25 for business loans or asset finance, though riskier industries may face higher minimums.

• Landlords: Commercial property owners often look for tenants with an FCCR above 1.3, especially in CBD locations.

• Investors: Private equity and venture capital are looking for FCCR trends over time, not just a single-year snapshot.

If your ratio is below 1.0, you’re not generating enough cash to meet fixed obligations—a red flag for any stakeholder. Aim to keep your FCCR comfortably above the minimum to absorb unexpected shocks.

Conclusion: Make FCCR Part of Your Financial Toolkit

In the fast-changing Australian business landscape of 2025, the fixed-charge coverage ratio is no longer just a back-office metric—it’s a frontline tool for financial management, risk assessment, and growth planning. By tracking and optimising your FCCR, you’re not just preparing for your next loan or lease negotiation—you’re building a more resilient, confident business.