Global Cash Flow Analysis
When a lender is evaluating a loan to a complex borrower – an entity with several people, businesses, real estate properties, etc. – credit analysis can become more challenging due to shared assets, relationships, and commingled debts and incomes. These scenarios require a global cash flow analysis to estimate the real creditworthiness of the whole entity.
If an institution has several lenders performing the analysis or has analysts new to global cash flow, the bank or credit union should be concerned with both accuracy of the calculations and consistency between lenders. As part of the institution’s underwriting standards, there should be written guidelines for when to conduct a global cash flow analysis, what information to collect from borrowers, and how to analyze the information.
Some of the biggest obstacles to avoid include:
- Relying on spreadsheet-based calculations, which often lead to inconsistency in how individual lenders or analysts combine incomes and debt levels.
- Double counting income or debt due to commingled businesses and people.
- Credit analysis programs that use a static output, making global analysis cumbersome and increasing the time required to properly analyze and approve loans.
- Difficulty combining personal and business incomes.
- Inconsistently applying underwriting standards throughout the institution.