Analyzing Cash Flow | SmartBiz University

Cash flow is an essential element of many small business loan applications. Learn about the calculation and how it can reveal the financial health of your business.


What is Cash Flow?

The term cash flow describes the net amount of funds coming in and being transferred out of a business. It demonstrates the business’s liquidity, meaning the extent to which it can cover expenses on short notice.

Positive cash flow indicates that a firm is successfully managing revenue and costs. When it comes to closing outstanding balances, reinvesting in the business, and handling financial emergencies, the company won’t run into any issues.

On the other hand, negative cash flow indicates that a business is incurring more costs than profits.

Why it Matters

Small business lenders typically evaluate cash flow in their application processes, especially for the lowest-rate financing. Strong cash flow can show lenders that potential borrowers are experiencing stable growth and can manage the additional responsibility of regular loan payments.

SBA Loans are known as the “gold standard” of small business financing because of their long terms and low rates. To qualify for an SBA loan through SmartBiz, you’ll need to demonstrate sufficient business and personal cash flow to service all debt payments, including the new SBA loan payment, backed by 3 years of tax returns and interim financial data.

Throughout the SmartBiz SBA loan application process, both business and personal cash flow are incorporated in several key calculations, specifically debt coverage. This metric helps banks assess whether you have enough cash flow available to cover additional debt. This short video has important information you need to know about cash flow calculation.

To learn more about calculating Business Debt Coverage and Combined Debt Coverage as well as many other important financial measures visit the SmartBiz Small Business Blog.

Cash Flow Management Tips

If you haven’t already, the first step to managing cash flow is to create a cash flow statement. As you complete the steps, you can see the elements that make the strongest impact on cash flow. Whether it be your cash balance, operations, or investing, you’ll notice which activities bring your cash flow up or down. Then, with a solid understanding of the metric, be sure to calculate it regularly to monitor your business finances.

Find more advice and useful tips for maintaining and improving cash flow on the Small Business Blog: Cash Flow Management Basics & Tips.

Do you need more in-depth information about your business? With SmartBiz Advisor*, we help small business owners thrive through educational content as well as customized insights into their business lending profile. By signing up for SmartBiz Advisor at no cost, you’ll be able to learn where your business stands in relation to key areas banks use to evaluate your business.


* The information provided through SmartBiz Advisor, including the Loan Ready Score, is for educational purposes and is not the same as scores used by lenders for credit decisions. SmartBiz Advisor is not a financial or legal advisor as defined under federal or state law. Use of this information is not a replacement for personal, professional advice or assistance regarding your finances or credit history.

 What you need to know: The information provided through SmartBiz® University and the articles contained therein are for educational purposes only. Use of this information is not a replacement for personal, professional advice or assistance regarding your finances or credit history.