What Is Cash Flow? | Business Lending Glossary

Definition

The net movement of money into and out of a business over a given period.

Explanation

Cash flow is distinct from profit — a business can be profitable on paper yet cash-flow negative if customers pay slowly or large expenses are due before revenue arrives. Lenders examine operating cash flow to assess whether a business generates enough liquidity to service debt without relying on external funding.

Example

A catering company earns $80,000 in December revenue but collects only $40,000 by month-end due to net-30 terms, while $55,000 in payroll and supplies are due — resulting in negative cash flow for that month despite strong sales.

Why It Matters

Cash flow is the primary lens lenders use to size loan offers and set repayment schedules — consistent inflows give lenders confidence you can meet daily or weekly payments.

Frequently asked questions

What is a good cash flow for a small business?

There is no universal benchmark, but lenders typically look for a debt-service coverage ratio (DSCR) of at least 1.25, meaning your business generates $1.25 in cash flow for every $1.00 of debt obligations.