How Global Cash Flow Shapes Loan Decisions

If you are getting a commercial real estate loan with a bank or credit union, they will almost certainly run a global cash flow analysis.

And if you do not meet their requirements, it can become major obstacle to getting the deal approved.

What is Global Cash Flow?

A global cash flow analysis looks at two things:

1. All sources of income and cash flow

   1. W2

   2. Business income

   3. Real estate income

   4. Investment income

   5. Other income sources

      
      

2. All recurring debt obligations

   1. Real estate debt

   2. Business debt

   3. Personal debt

   4. Credit obligations

   5. Other recurring liabilities

In simple terms, lenders want to determine whether you generate enough total cash flow to comfortably cover all your debt obligations.

Typically, banks want to see a 1.25x Debt Service Coverage Ratio (DSCR).

How is it Underwritten?

This is what makes this difficult.

There is no universal standard for underwriting a global cash flow analysis. Every bank has its own methodology, risk tolerance, and interpretation of borrower cash flow.

• Format: Some banks use a simple one-page worksheet, while others use detailed multi-page models.

• Expense adjustments: Some lenders make larger adjustments for personal living expenses than others.

• One-time items: Some assume certain income expenses are one-time adjustments, others do not.

• Narrative flexibility: Some are relationship-driven and will listen to the story, others are more programmatic.

The primary sources used in this analysis typically include:

1. Personal tax returns

2. Business tax returns

3. K-1s

4. Personal financial statements (PFS)

5. Schedule of Real Estate Owned (SREO)

6. Credit reports

Is This Analysis Time Consuming?

Yes. Especially for active real estate investors and business owners.

• A 20-page tax return can usually be reviewed fairly quickly.

• A 200-page tax return with multiple entities, properties, and transactions will take significantly longer.

The more complex your financial picture is, the more underwriting will require.

This is especially true for borrowers who:

• own multiple investment properties

• frequently buy and sell assets

• have layered ownership structures

• operate multiple businesses

The Best Gut Check

A simple question to ask yourself is:

"After paying all of my monthly debt obligations, do I consistently have meaningful excess cash flow remaining?"

1. If you do, and your income is properly reported on your tax returns – you will often be in good shape from global cash flow perspective.

2. If cash flow is tight, that will likely be reflected in your global cash flow.

That said, numbers alone do not always tell the full story.

Caution: I have seen borrowers who felt comfortable with their monthly cash flow and do not pass a global cash flow analysis. That’s where telling the story of your cash flow is extremely important. Do not just hand over documents – be prepared to provide context.

Timing differences, non-recurring expenses, depreciation, and business reinvestment can all materially impact the analysis.