Since lenders are generally reluctant to make loans to a firm to pay dividends, the firm's ability to pay cash dividends is generally constrained by the amount of excess cash available.

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Lenders are less likely to lend money to pay dividends because it increases the risk for the lender since dividend payments are not guaranteed. Therefore, a firm's ability to pay cash dividends is limited to the amount of excess cash available.

Since Lenders Are Generally Reluctant to Make Loans to a Firm