What do lenders look for in a borrower’s cash flow statement?

Lenders focus on cash — not just profit — to decide whether you can make loan payments. They read your cash flow statement to understand recurring cash generation, timing gaps, and any one-time items that mask true liquidity. In my practice advising small businesses and borrowers, clear trends and reconciled bank records make applications move faster.

Key items lenders examine

  • Operating cash flow
  • Shows cash from core business activities. Positive and growing operating cash flow is a strong signal of repayment ability.
  • Free cash flow (operating cash less capital expenditures)
  • Tells lenders how much cash is available after reinvestment.
  • Debt service capacity
  • Lenders calculate whether cash covers principal and interest. A debt-service coverage ratio (DSCR) is often used: cash available for debt ÷ debt payments.
  • Cash timing and seasonality
  • Lenders check for cash shortfalls between receivables and payables, especially in seasonal businesses.
  • Quality of cash
  • They verify that reported cash comes from sustainable operations, not one-time asset sales or owner injections.
  • Forecasts and stress tests
  • Forward-looking cash flow projections and downside scenarios show preparedness for shocks.

Documents lenders typically request

How to present your cash flow statement so lenders can say yes

  • Show trends: present 12–24 months of monthly cash flows to demonstrate consistency.
  • Reconcile to bank statements: lenders will cross-check reported cash with actual bank activity.
  • Explain irregular items: annotate one-time receipts, owner draws, or large capital purchases.
  • Include a clear forecast and sensitivity analysis: show best, base, and worst-case scenarios and how you would cover shortfalls (see our article on stress testing cash flow before applying for credit).
  • Keep documentation organized and easy to read: a simple cover memo that highlights key ratios helps underwriters.

Common mistakes to avoid

  • Relying on profit instead of cash: profits can be tied up in receivables or inventory.
  • Hiding owner transfers or related-party transactions: lenders want a true operating cash picture.
  • Not showing seasonality: missing seasonal context can make recurrent shortfalls look like insolvency.
  • Presenting forecasts without assumptions: lenders will question unsupported projections.

Short example

A retail client I worked with showed strong year-to-date profit but had three months of negative operating cash due to inventory buildup. We added a 12-month monthly cash flow schedule, explained the inventory cycle, and showed a short-term line of credit as a cushion. The lender approved a term loan at competitive rates once the monthly cash picture was clear.

Quick checklist before you submit

  • 12–24 months of bank statements and monthly cash flow schedules.
  • Reconciled P&L and balance sheet.
  • Cash flow forecast with assumptions and a stress test.
  • Notes explaining non-recurring items.

Sources and disclaimer

This page draws on lender underwriting practice and public guidance from the Consumer Financial Protection Bureau (CFPB) and IRS (https://www.consumerfinance.gov, https://www.irs.gov). This article is educational and not personalized financial or legal advice. For tailored guidance, consult a certified financial professional or your lender.

For related reading, see: