Pinnacle Consultants L.L.P.

Helping Businesses Reach Their Financial Peak

Financial Review

Traditional Financing, Does Your Company Qualify?

One key to a successful business start-up or expansion is the ability to obtain and secure appropriate financing.  Raising capital is the most basic of all business activities, but as many entrepreneurs quickly discover, raising capital is not easy.  It can be a complex and frustrating process. However,  knowing what your banker is looking for and being prepared can really help increase your chances of success.

Lenders vary to some degree in what they review when they evaluate a loan application.  However, you can count on the 5 C's of credit being reviewed in most business loan packages. They include: character, capacity, capital invested, conditions of the industry and collateral.


What is the owner's character?  Will they want to repay the loan?  Do they have the demonstrated ability to manage the resources of the business?  Do they have the  education, experience and motivation to manage the business successfully?   Bankers will want to be sure that the owner's/manager's character is strong and that they will do everything in their power to make good on the loan. 


What is the capacity of the borrower to repay the loan.  Financial obligations are paid in cash, not profits.  A business must be able to meet all of its debt payments as they come due.  Business owners are always required to provide a monthly cash flow report that covers the next 12 months with their loan application.  This cash flow statement must demonstrate the company's ability to generate enough cash to repay the loan and interest.

Capital Invested

Is there a reasonable amount of capital invested in the business?  There must be enough capital invested in the business to ensure that when combined with the borrowed funds, the business can operate on a sound basis. Strong equity with a manageable debt level provide the financial foundation to help the firm weather periods of operational adversity.  Most lenders require from 10% to 50% equity investment.  Significant equity investments by the business owner also help to ensure they are committed to making the company successful.

Conditions of the Industry and Economy

What are the conditions of the industry the company is competing in?  Is the industry growing or shrinking.  What is the likely-hood that the company will continue to be successful in their industry?  Does the company have a comparative advantage over its competitors? Most lenders will be looking for a stable or growing industry and a strong economy.  They will also be looking for a company that has some type of comparative advantage, that will allow it to be successful in its market.


What kind of assets are available to secure the loan?  Adequate collateral is required as security on all loans.  Most banks will look at all or part of the assets of the company and personal assets as collateral for the loan.  This would include not only the assets financed with the borrowed funds but other business and personal assets.  In the event that real estate is used as collateral, a borrower may be required to get a third party valuation of the real estate.


In addition to the above requirements a business owner should be prepared to answer the lenders questions.  These questions may include things such as:

  • What are the strengths of the management team?
  • What is the historical financial performance of the firm?
  • Are the companies books and records up to date and in good condition?
  • How much money does the firm need, when does it need the money and how will it be used?  How will the firm pay back the money?
  • Does the company have a diversified customer base and what is the quality of accounts receivable and inventory?
  • What is the type, age and condition of the company's equipment?
  • Does the firm have a good support team, CPA, Lawyer, Insurance Provider?

One of the keys to a successful business startup and expansion is securing financing.  Finding capital may be difficult at times.  However, knowing what your banker is looking for, and being prepared can significantly increase your chances of qualifying for financing.  So plan ahead, get your financing package together today and begin establishing that relationship with your financing source now, before you need it!

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Special Points of Interest

  • The 5 C's of credit include: character, capacity, capital invested, conditions of the industry and collateral.

  • Your financing source will want to know how much money the firm needs, when it needs the money and how it will be used?


Pinnacle Consultants L.L.P.

20704 N. 90th Place

Unit 1049

Scottsdale, AZ 85255

P: 480 980-3977

F: 480 585-1920



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