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for itself out of its own earnings. This is the concept of "financial feasibility." Financial feasibility consists in looking at a potential project and making an educated guess as to whether the project will generate enough income to repay the loan and at the same time generate enough profit to provide a reasonable amount of money to compensate your for the trouble you took to be productive.

If someone asks you how much capital credit is too much, the only answer is that, if the project being financed doesn't look as if it will generate its own repayment and at the same time provide a good income for the investor, then any amount of capital credit is too much . . . for that project. No capital credit should ever be extended for a project that is not expected to pay for itself out of future profits.

On the other hand, if a project is expected to pay for itself, then the right amount of credit is whatever is needed to finance the project. If the repayment is inherent in the project itself, it doesn't matter what the objective amount is. That is irrelevant. What matters is whether it can be paid back.

In short, all consumer credit is by its nature bad credit, and any amount is too much. Capital credit? The only way to decide how much capital credit is too much is on a case-by-case basis. You don't and won't know until you look at a specific project and examine the financial projections and assumptions and test them for soundness.

Learn more about this author, Michael Greaney.
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