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Cash Flow Statements

Why a statement of cash flow is essential for a bank to evaluate company's application for a loan? This company is short on cash.

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1. Why a statement of cash flow is essential for a bank to evaluate company's application for a loan? This company is short on cash.

In evaluating loan applications, three C's of credit are taken into account -- character, capacity and collateral. The cash flow statement has to do with the "capacity" of the company (e.g., statement of cash flow) to pay back the loan, and in this scenario it says that the cash flow is low. Therefore, the statement of cash flow is essential for a bank to evaluate company's application for a loan, as the banks needs to know that the company has enough cash flow to make the loan payments.

1. Character. Character is actually a check on your financial status and personal credit history, ...

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This solution explains why a statement of cash flow is essential for a bank to evaluate company's application for a loan.

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