Global Cash Flow

Global cash flow is the combined cash flow of a business and the people or companies that stand behind it, such as owners, guarantors and related businesses. Lenders use it to answer one question: once you add up all the income and all the debts across the group, is there enough cash to pay everything, including the new loan?

A business can show a strong debt service coverage ratio (DSCR) while its owner is stretched thin or a sister company is losing money.

The formula in words: global DSCR equals the combined cash available from the business, its owners and related companies, divided by the group's combined debt payments.

Worked example. A business has $150,000 a year available to pay debt. The owner, who is also the guarantor, earns $80,000 in outside income and spends $60,000 a year on living costs and personal debt payments, leaving $20,000. Global cash available = $150,000 + $20,000 = $170,000. The business's total annual debt payments, including the new loan, are $130,000. Global DSCR = $170,000 ÷ $130,000 = about 1.31.

Why it matters for lenders

US bank examiners say cash flow should be assessed on a global basis, and that covering a single loan's payments isn't enough. The work may mean combining business statements, personal tax returns and Schedule K-1 forms from several partnerships and companies. It should also include realistic personal costs, such as living expenses, taxes and personal debt.

Global cash flow matters most for small business and owner-occupied real estate loans, where the owner's money and the business's money are closely tied. It is common in underwriting for SBA 7(a) loans, backed by the US Small Business Administration (SBA). A personal guarantee is only as good as the guarantor's ability to pay, and global cash flow tests that.

How it works in practice

An underwriter reviews a loan to a dental practice owned by two partners. The partners also own a company that holds the building and leases it to the practice.

She spreads the practice's tax returns, both partners' personal returns and the building company's return. Then she builds a global cash flow, taking care not to count the same dollar twice. Rent the practice pays is income to the building company, and profits from the practice already show up on the partners' K-1 forms.

The practice alone shows healthy coverage. But one partner has large personal mortgage payments, which pull global coverage close to the policy minimum. She notes this in the memo.

This analysis is error-prone in spreadsheets, where each company sits on its own tab. Doing the financial spreading on linked records for each entity makes double counting easier to catch.