The Importance of Global Cash Flow in Bank or Credit Union Lending

If you are ever 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 don't meet their requirement, this is a showstopper.

What is it?

A global cash flow analysis looks at:

1. All of the cash flow you are generating (W2, business income, real estate income, etc.)

2. All of your debt payments.

Typically, banks wants to see a 1.25x DSCR.

How is it underwritten?

This is what makes this difficult.

There's not a single way that everyone does it.

Banks have different approaches to underwriting your global cash flow.

• Some banks do it on 1 pager, other banks have multi-page forms.

• Some will make larger personal expense adjustments than others.

• Some are more understanding to one-time adjustments, others aren't.

• Some will listen to the story, others are more programmatic.

The primary sources for this analysis are your personal tax return, business tax returns, K-1s, personal financial statement, SREO, and credit report.

Is this analysis time-consuming?

Yes. Best way to estimate the time it takes to do this:

• If you have a 200-page tax return, it's going to take a while.

• If you have a 20-page tax return, it is much faster, but still takes time.

Typically speaking, if you are active in real estate, own a lot of properties, and are regularly buying and selling, the underwriting can take a while.

The Best Gut Check

"Do you have a lot of excess cash flow each month after paying your debts?"

• If you do (and your report all your income to the IRS) then more often than not, you'll be fine.

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

Caution: I've seen it where a client is comfortable with their monthly cash flow, and doesn't pass a global cash flow analysis. That's where telling the story of your cash flow is really important.

Special Message to Banks and Credit Unions

Almost all of the banks and credit unions I have spoken with over the years run global cash flows.