Glossary

Cash flow underwriting

Deciding on funding from the pattern of money in and out.

Evaluating a business on its cash inflows and outflows (and their consistency) rather than credit scores or collateral alone. Bank-statement underwriting is the fast form; lenders making term loans use a fuller version with financial statements, computing debt-service coverage (cash available for payments divided by the payments).

How it appears in a contract

Appears as document requests and a coverage covenant on larger facilities.

Worked example

Monthly cash available for debt service of $9,000 against a proposed $6,000 payment is 1.5× coverage, a level many lenders find acceptable; each sets its own minimum.

Illustrative figures on stated assumptions; not quotes.

What to ask

• What coverage ratio does the lender require?
• Which add-backs (owner salary, depreciation) are allowed?
• How does seasonality get treated?

Related terms

Bank statement underwriting · Working capital · Time in business · all terms