How cash flow and profitability affect business loans


Close-up of a two men shaking hands over graphs and spreadsheets

Your power to borrow largely depends on your ability to repay the loan.

Many small business owners find themselves in a pickle when they apply for a business loan. They have a thriving business, but their taxes show little or no profit. Low profit results in lower income tax but it can hinder a business’s ability to get a loan.

The best time to learn about small business loans is before you actually need one. Let’s take a look at the application process.

What happens when you apply for a business loan

When you apply for a business loan, lenders will ask two key questions to assess your ability to pay it back:

  1. Is the business profitable?
  2. Is there positive cash flow?

Positive cash flow simply means more cash is coming in than is going out over the same period of time.

Profit is revenue minus expenses. It’s typically determined by tax returns and Profit & Loss Statements.

You could have positive cash flow without profit

It’s possible for a business to have positive cash flow yet show a loss on its tax return. This happens when noncash expenses like depreciation and amortization are used to lower income. Expenses like these don’t require cash payments so they don’t affect cash flow. However, they may have a big effect on business taxes and net income.

Choice of lender

Lenders vary in their underwriting standards. Some will look at the profits shown on your tax return and add noncash expense items back into your profit figure. For example, Consumers will add back interest expense, depreciation and amortization when evaluating your cash flow. This adjusted amount is used to determine the amount of debt the company can service on an annual basis. Add-back items can help you show a higher profit than reflected on your tax return and thus help you get the loan you want.

Local loan decisions

At Consumers, loan underwriting is done on a case-by-case basis. Decisions are made locally. Our loan officers build relationships with business members through conversation and document reviews.

When you need a business loan or business line of credit, we invite you to talk to us first. Give us a call at 800.991.2221 or send a message online. We’ll walk you through every step of the loan process so you can get the working capital you need to grow your business!


Federally insured by NCUA


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  1. KIM SORRELLE says:

    Looking for business loan

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