Cash netting cap

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED 2026-11-06

// THE SHORT ANSWER

A cash netting cap limits how much cash a borrower may deduct from its debt when net leverage is calculated, so that a large or temporary cash balance cannot flatter the ratio. In one composite file debt is US$50m, cash US$15m and EBITDA US$10m: uncapped, net leverage is 3.5 times; with a US$5m cap it is 4.5 times. Lenders ask for a cap where the cash may not stay, such as a balance held over a test date before suppliers are paid, sale proceeds about to be paid out or cash trapped in subsidiaries, and borrowers push to raise or remove it.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.