Cash Flow History

Cash Flow History

Cash flow from a business's ongoing operations is the most important factor for acquiring short-term debt financing. A lender's main concern is if your daily operations will create enough cash to repay the loan. Cash flows also show how your cash expenditures relate to your cash sources. This information gives a lender an insight into your business's demand, management competence, and business cycles.

Most lenders are aware that a sufficient cash flow presents a big problem for most small businesses. For every loan, they will typically require historic and projected cash flow statements. These statements must be as accurate as possible, because many lenders will analyze the data and ask questions. In preparing cash flow projections for newer businesses, you should refer to sales/expense ratios for the specific industry your business is in. These ratios will help you compute reasonable sales revenues and expenses that are in line with your relevant industry.

A business's cash flow will usually include money from operations and any cash flows from investments or financial activities. This includes payments and receipts of interest, dividends, long-term contracts, insurance, sales, leases, and the purchase of machinery. The most significant element to a lender is simply whether the business's ongoing sales and collections is a consistent and ample supply of cash for the repayment of the loan.

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