What is global cash flow?

Global cash flow analysis looks past a single borrowing entity to the full financial picture of the people and businesses that stand behind a loan. It combines cash flow from the borrower, affiliated businesses and individual guarantors, then compares the total against all of their debt obligations and personal living expenses. The result is often expressed as a global debt service coverage ratio.

Lenders rely on global cash flow most heavily for owner-managed businesses, commercial real estate investors with multiple properties, and borrowers whose entities move cash among themselves. Bank examiners expect institutions to understand the guarantor's ability to support the credit, and a global analysis shows whether outside obligations could drain cash the borrower needs. It also reveals contingent liabilities, such as guarantees on other loans, that a single-entity spread would miss.

The classic error is double counting. If a business distributes $200,000 to its owner, that cash should appear once, either in the business's cash flow or in the owner's personal income, but not both. Other pitfalls include omitting personal debt such as mortgages and credit cards, ignoring tax liabilities on pass-through income, using stale personal financial statements, and treating cash flow from entities the guarantor does not control as fully available.