For guaranteed line of credit cases, what should the cash flow budgets be based on?

When evaluating guaranteed line of credit cases, basing cash flow budgets on three years of financial history is essential for establishing a comprehensive and realistic understanding of the borrower's financial situation. This three-year period provides adequate data to identify trends in income, expenses, and overall cash flow. It allows the loan officer to assess how consistent and stable the borrower’s earnings are or to pinpoint any potential fluctuations in their financial situation that may affect future cash flows.

Using a three-year history strikes a balance between having enough data to make informed decisions while still remaining relevant to current market conditions. A longer timeframe could incorporate outdated financial behaviors influenced by conditions that no longer apply, while one year might not provide a complete picture of seasonal or cyclical income variations that could impact the borrower's cash flow. Hence, three years offers a pragmatic approach for decision-making regarding financial measures associated with guaranteed lines of credit.