Why might an overall outflow from paying off a loan be considered positive for a business?

Paying off a loan might be viewed as a positive financial action for a business because it avoids overdraft scenarios. By settling a loan, the business reduces its liabilities and interest obligations, which can enhance its cash flow position. This proactive approach ensures that the company's available cash does not dip below the necessary levels, influencing liquidity and the ability to meet immediate financial commitments. Managing debt effectively helps maintain a healthy financial status, reducing risks associated with negative cash balances that could lead to overdraft situations.

In contrast, the other options do not fully encapsulate the broader implications of loan repayment:

• Reducing the total amount of capital is not generally a direct result of paying off a loan; rather, it pertains more to the capital structure than immediate liquidity.

• Surplus cash does not necessarily correlate directly with loan repayment; a business can have surplus cash while still carrying debt.

• Long-term financial sustainability can be affected by many factors, but simply paying off a loan does not automatically indicate sustainability without considering overall financial health and operational profitability.