A corporate borrower shows robust net worth and a low Debt-Equity ratio, but their projected Debt Service Coverage Ratio (DSC

While Capital (net worth/leverage) is strong, the borrower lacks the Capacity (cash flow) to service the debt, as a DSCR below 1.0x means operational earnings cannot cover regular loan installments. While Capital refers to the promoter's own skin-in-the-game (net worth, equity contribution, and leverage ratios), Capacity measures the borrower's ability to generate enough cash flow to service the debt. The Capacity by analyzing cash-generation metrics like the DSCR, interest coverage ratio, working capital cycles, and operating profit margins. If the cash flows are inadequate, the proposal fails the Capacity test, regardless of how strong the collateral is.