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Tim’s question:

Our borrower shows a cash contribution of $200,000 on the 2020 tax return and a distribution on the 2021 tax return for $21,000. Would it be acceptable to net these two numbers and allocate the difference to the 2021 cash flow? Personally, I do not agree as these items are from two different periods and it’s difficult to account for where/how the capital contributions were utilized.

Linda’s answer:

Need to know more

Tim, you are going to love this answer…It depends!

I am assuming you are not doing a two-year analysis including both 2020 and 2021. If you were, the question could be moot. But maybe not. That $200,000 is a pretty big number and feels like it could be for a nonrecurring need. I would like to know more.

Purpose of the large capital contribution

Was the company retiring debt? Expanding? Purchasing real assets and needing a boost from the owners to qualify? Additionally, were there distributions in 2021?

Asking the borrower how much the $200k was utilized by the business should help you determine what is typical for this client.

Remember, 2020 was the start of the pandemic recession and regulators have told us they will not criticize the financial institutions for using prudent judgment with short-term setbacks for our borrowers.

So, if the $200k capital contribution was used primarily to shore the company up in 2020, and in 2021 and 2022 you can see the company has recovered, consider whether this meets that ‘prudent judgment’ criteria.

Follow-up from Tim

They are not doing a 2020/2021 analysis. And there may have been a real estate purchase.

What percentage ownership?

If this is a personal or guarantor analysis, and the owner is a high percentage owner, perhaps that owner’s share of the generated cashflow from the business or real estate activity would be more relevant than the capital contributed. I would look at whether the owner still has sufficient liquidity and debt/equity given the large capital contribution. Then I would look to the operation or investment cashflow for continuing impact.

More info for you


Our modules on pass-through entities, whether filing the 1065 or the 1120S, will give you the big picture and help you drill down to recurring cashflow. Each of these advanced business tax returns has three 30-minute-or-less modules. Our final case study is a global pass-through analysis, done in zoom break-out rooms with assistance and review by our senior credit trainers.

Click here to access online training.

Basics and Overview Modules

  • Difference between C-Corp and S-Corp
  • Choose between quick and thorough review
  • Get a snapshot of the business

Company Cashflow Modules

  • Determine recurring cash flow to pay debt
  • Spot and resolve red flags
  • Ask good questions and dig deeper when needed
  • Uncover more loan opportunities


  • Why the 1040 number is not cash flow
  • Why guaranteed payments are not guaranteed.
  • How much did the company pay the owner.
  • Which numbers to use for personal loans

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Linda Keith, CPA

Linda Keith CPA is an expert in credit risk readiness and credit analysis. She trains banks and credit unions throughout the United States, both in-house and in open-enrollment sessions, on Tax Return and Financial Statement Analysis.
She is in the trenches with lenders, analysts and underwriters helping them say "yes" to good loans.
Creator of the Tax Return Analysis Virtual Classroom at www.LendersOnlineTraining.com, she speaks at banking associations on risk management, lending and director finance topics.