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Five (more) reasons a business might not be credit-worthy

I have known John Martinka for years. He is a founder and vice-president of “Partner” On-Call
a nationwide group of consultants. His focus is working with business owners who want to (eventually) sell their business. From a valuation point of view, he lists five reasons the business may not be what the owner hopes it is. My first thought when I read the list was that these are also five reasons you, the lender, might have concerns about a business loan.

Here are the five:

  • Dependency on owner
  • Customer concentration
  • Financial statements and tax returns differ (see my note below)
  • Dependency on a key employee
  • Poor lease or no lease available

About differences between financial statements and tax returns

As a lender, you need to know the legitimate reasons the financial statements and tax returns will differ:

  • Cash basis versus accrual basis
  • COGS rules
  • Inventory rules
  • Depreciation rules
  • Calendar year versus fiscal year

Good list, though. Read his full post here.

What would you add?

About the Author
Linda Keith CPA is an expert in credit risk readiness and credit analysis. She trains banks and credit unions throughout the United States, both in-house and in open-enrollment sessions, on Tax Return and Financial Statement Analysis. She is in the trenches with lenders, analysts and underwriters helping them say "yes" to good loans. Creator of the Tax Return Analysis Virtual Classroom at, she speaks at banking associations on risk management, lending and director finance topics.
  1. John Martinka

    It’s interesting what you write about my reasons about why a business may not be worth what an owner thinks it is and how those reasons affect loan approval. This is because it is my experience that bankers, at least outwardly, don’t look too far beyond the financial statements. It’s rare when my clients’ get asked too much about the non-financial factors of the business. While I don’t expect banks to go into the depths we do on these issues it’s surprising how rare there is any interest in the non-financial factors. Plus, it seems that most of the valuations banks get (primarily for SBA loans) are simple valuations that rely primarily on the financial statements.