Global cash flow analysis combines a company's cash flow with the finances of the owners who guarantee its loan: what the company pays them, their other income, their personal debt payments, their living costs and any debt they guarantee at other companies. The result is a global coverage figure, read alongside the company's own debt service coverage. Banks run it when owners personally guarantee the loan, especially where the owners also hold the real estate or other businesses. Private credit funds lending to sponsor-backed companies usually do not, because no owner's personal finances stand behind the loan.
- What it combines
- The company's cash flow plus each guarantor's income, debts and living costs
- Who runs it
- Banks lending to owner-guaranteed companies
- Who usually does not
- Private credit funds lending to sponsor-backed companies without personal guarantees
- Who is included
- Each guarantor, and the other companies they own or guarantee
- Main sources
- Personal and business tax returns, personal financial statements, credit reports, affiliates' returns
Why a bank looks past the company
An owner-operated company is run by people who can take cash out of it when they choose. What the owners need personally, to pay a mortgage, service a loan on a second property or cover losses at another company they own, is a claim on the same cash the bank expects to be repaid from. If the owners' commitments exceed what the company pays them, the shortfall will come from somewhere, and the company is the obvious place.
The personal guarantee works the same way in reverse. A guarantee from someone whose income is fully committed is worth less than one from someone with a surplus. Global cash flow measures both risks at once: whether the owners will draw more from the company than it can spare, and whether the guarantors could step in if the company fell short.
The company's coverage tells the bank the company can pay. Global coverage tells it the people behind the company can afford to let it.
What goes into the calculation
Banks build the analysis from tax returns first, because they can verify them. Methods differ, especially on living costs, so treat this as the shape of the calculation rather than any one bank's worksheet.
| Component | Where the bank gets it | How it is treated |
|---|---|---|
| Company cash flow available for debt service | Business tax returns and financial statements | After the owners' salaries, which are business expenses |
| Company debt service | Debt schedule, including the proposed loan | All scheduled principal and interest |
| Guarantor's salary from the company | W-2 on the personal return | Added as personal income |
| Other personal income | Personal returns: a spouse's wages, rental and investment income | Added if documented and recurring |
| Income from other companies the guarantor owns | K-1s and those companies' returns | Counted only if actually distributed; a loss or shortfall can be deducted |
| Personal debt payments | Credit report and personal financial statement | Mortgages, vehicle loans, personal lines and notes |
| Debt the guarantor guarantees elsewhere | Personal financial statement and affiliates' returns | Counted where the other company does not cover it |
| Living costs and personal taxes | A bank allowance, or the guarantor's own budget | Deducted from available cash |
Two mistakes appear often in owner-prepared figures. The first is double counting: a pass-through company's income appears on the owner's K-1 and personal return, but it is the same cash already counted at the company, so it cannot be added again. Only the salary the company pays the owner moves across, because it was deducted as a business expense. The second is leaving out other companies. An owner of a second company that loses money, or whose loan the owner has guaranteed, carries that obligation into the global analysis, and the bank will ask for that company's returns to see it.
How a strong company fails the global test
An owner is refinancing an established contracting company. The company has cash flow available for debt service of 1,000 after paying the owner a salary of 120, and debt service of 750 including the new loan. Company coverage is 1,000 against 750, about 1.33 times, comfortably above the 1.25x conventional bank lenders commonly look for.
The owner pays 120 a year on a home mortgage, 70 on a second home, 30 on vehicles and 30 on a personal line, and covers a shortfall of 50 a year at a second company he co-owns, whose loan he guaranteed. The bank deducts 100 for living costs and personal taxes.
| Line | Amount |
|---|---|
| Company cash flow available for debt service | 1,000 |
| Plus the owner's salary | 120 |
| Less living costs and personal taxes | (100) |
| Global cash available | 1,020 |
| Company debt service | 750 |
| Personal debt service and the second company's shortfall | 300 |
| Global debt service | 1,050 |
| Global coverage | about 0.97 times |
The company passes; the global test does not. Nothing about the contracting company is weak. The owner's commitments consume its surplus, and a bank reading this file sees an owner who, in a bad month, will pull cash from the company to keep the second home and the other business afloat.
What changes the answer
Global cash flow is built from facts, so the fixes are about documenting or changing those facts, not presenting them differently. Using the example above:
- Documented household income. If the owner's spouse earns 80 a year, shown on the joint return, global cash available rises to 1,100 and coverage to about 1.05 times. Undocumented income does not count.
- The other company carrying its own debt. If its returns show it now covers its loan, the shortfall drops out. Banks want the returns to prove it, not the owner's word.
- A personal obligation that has ended. Selling the second home before the application brings global debt service to 980 and coverage to about 1.04 times.
- The right salary. A salary set too low flatters the company side and starves the personal side; set too high, it does the opposite. Banks look for a salary that fits the role.
- Loan structure. A longer amortization, or a real estate piece financed over a longer term, lowers the company's debt service.
Paying personal debts with a distribution funded by the new loan moves the obligation rather than removing it: the personal payment goes away and a larger company payment takes its place. The bank tests the result the same way. See recapitalizations for business owners.
When lenders run it, and when they do not
At this size the answer depends on the lender and on how much the loan relies on the owners. Banks lending to owner-operated companies with personal guarantees commonly run a global analysis, and they run it hardest where the owners also hold the real estate through a separate entity or own other companies with their own debt. Private credit funds lending to sponsor-backed or professionally managed companies usually look at the company alone, because no owner's personal finances stand behind the loan.
A guarantee limited in amount or time narrows the analysis, and a loan with no guarantee usually removes it. That makes the guarantee itself a term worth comparing across offers, alongside rate and covenants. See limited vs unlimited personal guarantees and releasing a personal guarantee in a refinance.
The documents behind it
- Personal tax returns for each guarantor, usually two to three years
- A personal financial statement for each guarantor, on the bank's form
- Business tax returns for the company and for any other company a guarantor owns or guarantees
- A debt schedule for the company, with copies of notes being refinanced
The bank will also pull a credit report and may verify returns with the IRS. The personal financial statement must agree with the credit report and the returns: a mortgage on the credit report that is missing from the statement is the kind of inconsistency that slows a file. A personal obligation that sinks global coverage is better found by the owners before a bank finds it, while there is still time to change the structure.
Common questions
- What global coverage do banks look for?
- Each bank sets its own minimum. Most want the global figure above break-even with some cushion, and they read it alongside the company's own debt service coverage, where conventional bank lenders commonly look for at least 1.25x.
- Whose personal finances are included?
- The guarantors'. Each one's income, debts and living costs are usually part of the analysis, along with other companies they own or guarantee.
- Can my spouse's income help?
- Yes, if it is documented, typically on a joint tax return, and recurring. It raises global cash available. Undocumented income is not counted.
- Does a loss at another company I own count against me?
- It can. If you guarantee that company's debt or fund its losses, the shortfall is usually deducted in the global analysis unless its own returns show it covers its obligations.
- Why did my company pass debt service coverage but fail global cash flow?
- Because your personal obligations, such as mortgages, vehicle loans, guarantees of other companies and living costs, used up the surplus the company produces. The two tests measure different things.
- Do private credit lenders run a global analysis?
- Usually not for sponsor-backed companies without personal guarantees. Where an owner guarantees a private credit loan, some funds look at the owner's finances too.