Business dictionary.com defines CASH FLOW AS:
Incomings and outgoings of cash, representing the operating activities of an organization.
In accounting, cash flow is the difference in amount of cash available at the beginning of a period (opening balance) and the amount at the end of that period (closing balance). It is called positive if the closing balance is higher than the opening balance, otherwise called negative. Cash flow is increased by (1) selling more goods or services, (2) selling an asset, (3) reducing costs, (4) increasing the selling price, (5) collecting faster, (6) paying slower, (7) bringing in more equity, or (8) taking a loan. The level of cash flow is not necessarily a good measure of performance, and vice versa: high levels of cash flow do not necessarily mean high or even any profit; and high levels of profit do not automatically translate into high or even positive cash flow.
If there is one thing all businesses have in common, it is that they exist to make money. ‘SHOW ME THE MONEY!”. This is meet the first rule of lending … do they generate enough cash to service this new debt? If you can add and subtract and you can’t show POSITIVE cash flow lenders see no reason to offer money to a business that can prove it can pay it back. After all, if a business isn’t even making money to begin with, then there is no need to hand it a business loan in the hope that is generates growth.
Diane Roehrig, President of Alacom Finance says“Whether your capital needs are for an established business, aka an expansion, or a new startup company, adequate cash flow needs to be available to repay a loan,” “You must be able to re-pay all other business expenses as well as their personal needs outside of the capital you wish to borrow.”
Assuming a business can prove it has excellent cash flow, that puts it over the first hurtle and will NOT mean that your going to automatically qualify for a business loan.