- Excess cash flow is cash received or generated by a company that causes a payment to a creditor as stipulated in their bond or loan agreement.
- Lenders impose restrictions on how excess cash can be spent in order to maintain control over the repayment of a company’s debt.
- However, the creditor does not want to create so many restrictions that it would damage the financial viability of the company.
- If excess cash flow is generated, the lender may require repayment that is all or some of the excess cash flow.