Credit analysis
Global cash flow: how lenders calculate it
Last updated · Kaaj editorial team
Global cash flow combines the cash flow and debt service of a business with those of its guarantors and related entities, after removing intercompany items, to test whether the whole borrowing group can carry its debts. Lenders use it for small business loans with personal guarantees, where business and personal finances are intertwined.
How to calculate global cash flow
- Start with business cash flow: net income plus depreciation, amortization, interest, and policy add-backs.
- Add each guarantor's personal income that is not already counted in business cash flow, such as wages from other employers or rental income.
- Subtract personal living expenses, using actual figures or your policy's allowance, and personal taxes if not already netted.
- Add cash flow from related entities and remove intercompany rent, management fees, and loans.
- Divide total global cash flow by the group's total annual debt service, business and personal, including the proposed loan. The result is global DSCR.
Common mistakes
- Counting distributions twice: once in business cash flow and again as K-1 income on the guarantor's return
- Using K-1 income when the business did not actually distribute cash
- Leaving out personal debt such as mortgages, auto loans, and credit cards
- Ignoring intercompany rent between an operating company and the real estate entity that owns its building
Global cash flow example
A business with one guarantor requesting a loan with $37,800 of new annual debt service.
Frequently asked questions
What is global DSCR?
Global DSCR is global cash flow divided by the group's total annual debt service, business and personal. It shows whether the business and its guarantors together can cover all their debts.
When do lenders use global cash flow?
When guarantors or related entities support the loan, which is typical in small business, SBA, and owner-occupied commercial real estate lending.
What is a good global DSCR?
Many lenders look for at least 1.20x to 1.25x on a global basis, though some accept less when the business-only ratio is strong. Your credit policy decides.
Should K-1 income be included in global cash flow?
Only to the extent it was actually distributed in cash and is not already counted in business cash flow. Many lenders use distributions rather than K-1 income for this reason.