Your Loan – Lost in the “Global Cash Flow”

Your loan is personal to you but global to the banking industry, you may have to shed associations that have bank problems

Since the world is always coming up with new catch phrases to define a specific event, the banking industry, not wanting to miss a chance to be hip, thought it needed one of its own. The concept is a borrower’s “Global Cash Flow”. (Please don’t invite this exciting person to your next party.) Your “Global cash flow” is an analysis that is as broad as it is long and has become the new standard in the banking world. It is an easy thought process but it opens and addresses many ugly cans of worms.


The best way to understand your Global Cash Flow analysis is to picture an onion. The person or business entity that is applying for the loan is the center ring of the onion. A banker will look at all loans and obligations you have to make sure that the income/cash flow is sufficient to cover them and for you to repay that new loan request amount. Sounds like a prudent process; if there is sufficient money to support the total debt, we should be able to get the new money. Right? Wrong! Remember, we are no longer in the good old days of easy lending. Once this initial smell test has been completed the next level of the onion gets scrutinized. The industry now looks to the principals of the entity (who are typically the guarantors of the loan) to see if they can also meet their obligations as they come due. Is the bank able to meet its obligations? Now, this sounds like overkill. If the bank can meet its obligations, THEN we should get our loan, right? Wrong again! The next layer of the onion checks to see if all of the companies affiliated with the bank can sustain their obligations from the cash flow of their operations. The next layer looks at all guarantors of the affiliated companies. Can we stop here? No way! Bankers only use the big fat onions! Next we look at the health and stability of other banks that hold debt of any of these people/businesses borrow from. Next… You get the idea.It becomes a vicious circle and is very much akin to kudzu… it just keeps growing.


To get around this bloomin’ onion, most borrowers are creating containment circles around the borrowing entity to limit the never ending search for a problem. Assuming the borrower can repay the loan with adequate cash flow to spare, most companies have started looking at their corporate structure to head off any problems at the pass. Guarantors or affiliated companies with “issues” do not need to be on the loan or anywhere near the loan. Remember, a bad onion can quickly spoil a bunch. If you have tainted associations, buy them out, separate ownership, get them off the corporate register, anything, just figure out how to legally protect the borrowing entity from any potential reason to sink the loan! The good old days of inviting our friends/family into a business are over because the bankers will and do look through ALL the closets for skeletons and no longer ignore them. The simplest business loan today is a cash flowing business with one solvent guarantor. When you start adding layers of additional guarantors of affiliated entities to this simple model, your chances of being turned down grow exponentially. While you might be afraid to look in your corporate/guarantor’s closets, don’t be dumb enough not to. It IS your business (literally), and you need to know. It is not the banker’s job to clean your house or ignore your short- comings; it’s just his job to say “No”. It’s their belief (and a lot of others as well) that if more “No’s” had been used in the past, we might not have been in this deep of a mess today. Do your cleaning and build your fire walls first; see your banker second. The banking game is different and the new rules are here to stay…, for a long time. The sooner we adapt, the sooner we move on.


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