Cause and Effect: If you build it, will they come?

July 23, 2014
/   Spotlight

Many financial institutions assume that digital banking is lucrative because the most valuable customers happen to bank online. While there is certainly a correlation between online bankers and higher profitability, quantitative evidence suggests that...

Intuit 2020 Report: The Future of Financial Services

April 11, 2011
/   Insights

Today, Intuit released the latest edition of the Intuit 2020 report, Intuit 2020 Report: The Future of Financial Services, which identifies and examines four key trend areas that will  transform the financial services industry...

Fast Facts: Student Loans

January 22, 2013
/   Insights

The Financial Services Roundtable recently released another iteration of its Fast Facts, reliable, bullet-point research about issues facing the financial services industry. Topics span TARP, Dodd-Frank, insurance, lending, retirement savings and more.  Below are some updated Fast...

The Top 10 Trends in the Digital Banking Industry

December 18, 2013
/   Spotlight

2014 is rapidly approaching and as the year wraps, the Digital Insight team has pulled together the top 10 trends in the digital banking industry based on data and trends from studying financial institutions....

Making Banking Fun: Gamification in Financial Services

August 5, 2013
/   Insights

Recently, the team sat in on American Banker’s webinar, “Gamification in Financial Services: Five Proven Ways to Get an Edge,” which shared how leading brands in financial services have applied gamification to reach...

Technology M&As: The Beats Go On

May 29, 2014
/   Insights

The ongoing fascination with Apple’s $3 billion purchase of Beats Electronics is entirely understandable, because it’s a cool story. However, it also says a lot about what’s going on between finance and tech.

What We’re Reading

May 5, 2011
/   Spotlight

Below are interesting stories the staff has been reading over the past week. What have you been reading? Let us know in the comments section below. Virtual Banking Worlds Provide Tangible Lessons American...

Small Business: Perception vs. Reality

November 21, 2012
/   Insights

In the most recent election cycle, like most others before it, the one sector of the economy that got the most attention was small business.  This is the future, we were told by every...

What We’re Reading: Thanksgiving Edition

November 22, 2012
/   Spotlight

Below are interesting stories the staff has been reading over the past week. What have you been reading? Let us know in the comments section below or Tweet @bankingdotcom. Mobile Thursday? Plans for Thanksgiving...

When an entrepreneur needs money, there are many places he or she can go. Between crowdfunding platforms and venture capitalists, the fundraising business has become increasingly crowded. Despite the competition, the traditional bank loan remains appealing because it’s often backed by a trusted institution with protections offered by the federal government. This level of trust, though, comes with a price.

Loan officers are leery to give their bank’s money to any start-up off the street, and they won’t accept an applicant’s valuation based solely on their rose-colored glass pitch. There needs to be a proven track record of success even if it’s just the past 12 months. There should be a clear and reasonable plan to grow the business. Most of all, there needs to be solid financial data – preferably prepared and endorsed by a professional.

Growth projections always mean more to a loan officer if an independent CPA confirms them. As auditors, we take on a fiduciary responsibility to verify each client’s financial records – their tax returns, income statements and each line of the balance sheet. We also scrutinize revenue projections based on a variety of business and market factors such as consumer demand and the entrepreneur’s go-to-market strategy. We review financial assumptions being made for reasonableness.

One aspect that is often overlooked is how the company will reach its customers. Without a comprehensive marketing and public relations strategy, many companies will not be able to scale at a reasonable rate, and that missing piece could raise the risk level for a loan officer. It might be enough risk to hike the interest rate, reduce the valuation or, worse, kill the financing deal all together.

Other key factors, such as accelerated depreciation of assets or research and development tax credits, might be overlooked by some of the most financially savvy business owners. The best advice we can give is for them to filter their tax and accounting through the experienced eyes of a highly trained and experienced CPA. The CPA can provide the expertise necessary to maximize incentives that will increase the business’s working capital, which ultimately reduces the credit risk to the bank.  I’ve found companies that take the necessary time and effort to identify and maximize certain tax and other incentives with the guidance of a CPA are in a much better cash position to increase their credit line or obtain other financing from their bank.

By the time it gets to the bank, a fully vetted loan application should read as a blue print for paying back the bank’s money.

The Hunt for Risk

Whenever the numbers don’t add up – or appear too good to be true – it affects the valuation of the company’s assets, but by how much? I’ve found that sloppy bookkeeping can cut a company’s valuation substantially, sometimes up to 20 percent or more.

Like accountants, loan officers are doggedly hunting for risk all day long. Some are hidden on the 107th page of an applicant’s balance sheet, or in a note from the 1990s. Others could be quite obvious, but only if you have the experience to know how to look for it.

Here are some examples of possible red flags:

Delayed tax returns: While most companies are entitled to an automatic six-month extension, delayed tax returns could make it challenging to put a price on assets. Without the most up-to-date tax return, the valuation may be based on data that does not reflect the company’s current worth. In today’s world, banks base their lending on the most recent tax returns.

History of audit failure: An old and relatively minor error in bookkeeping could still come back to haunt an entrepreneur. How can a bank fund a business if its new treasurer had once been cited by regulators? It’s a tough assessment to make, but one that can be eased if there’s a solid and well-reported history of financial performance following the initial error.

Path to growth: Most entrepreneurs are optimistic thinkers by nature, but that confidence can become foolishness if it’s not checked by someone with the proper financial and marketing acumen. One of the main elements to scrutinize is the company’s customer acquisition cost – what a new business plans to spend to get the word out and close new accounts. It’s one of the most underestimated expenses of a new business and also one of the most critical aspects to address if the applicant is going to scale and make good on their loan.

Marginal new product development activities:  It goes without saying that companies need to continue to be on the technical forefront of their industry to remain competitive.  Companies that don’t clearly show this level of acumen are a greater risk for the bank, because sustaining the revenue stream that would provide the ability to pay back the loan could be in question.  On the other hand, companies that embrace new product development and innovation strategies and the tax incentives that follow provide the bank with a greater level of comfort by demonstrating their exploitation of a unique niche that is ahead of its competition.


When it comes to determining whether or not a bank should consider lending to a company, a CPA is the one of the most valuable resources. The terms of each loan should be calculated based on verifiable valuation metrics and a fair risk assessment. If done properly, the application process will benefit both the applicant and the lending institution.


Bradford L. Hall is the Managing Director of Hall & Company, CPAs & Consultants in Irvine, CA. He has worked with banks and entrepreneurs in California for the past 37 years. He can be reached at (949) 910-4255 or


Insights’s perspective on industry news and trends



Must-read news and insights from financial industry leaders



Compelling voices and contributed content from around the web

James W. Gabberty

Gabberty is a professor of information systems at Pace University in New York City. An alumnus of the Massachusetts Institute of Technology and New York University Polytechnic Institute, he has served as an expert witness in telecommunication and information security at the federal and state levels and holds numerous certifications from SANS & ISACA.

Zachary Ehrlich

25-year-old writer, and as a native San Franciscan, I am unreasonably loyal to Bank of America, if only for their superhero-like origin story, involving the 1906 earthquake and Italian fruit vendors.

Brad Strothkamp

Marisa Mann

Marisa Mann brings over 15 years of experience in consulting and financial services industries to the Solstice team, working on large scale enterprise initiatives across many technologies, including specializing in the digital space – Internet and mobile. Mann is passionate about mobile and the endless possibilities for the enterprise, delivering business value through strong brand recognition and driving to excellence in the consumer experience. Prior to Solstice, Mann worked at JP Morgan Chase, Diamond Management and Technology Consultants, Washington Mutual, Inc, and Accenture.