FFA Farm Business Management Practice Exam 2026 – Comprehensive Test Prep

Cash flow analysis is what lenders rely on to gauge repayment ability. They project inflows from operations and compare them with outflows like expenses, taxes, and scheduled debt payments, then assess when cash will be available to make loan payments. This helps determine how large a loan the borrower can reasonably service and when payments should occur, often using metrics like the debt service coverage ratio. If cash flow is strong and predictable, borrowing capacity increases; if it’s weak or volatile, the lender will limit the loan or require tighter terms. Collateral value, while important for security, does not show repayment capacity by itself, and a marketing plan or current asset prices relate more to growth potential or liquidation value than to the ongoing ability to pay.