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Word Count: 4,169
Some small business persons cannot understand why a lending institution refused to lend them money Others have no trouble getting funds but they are surprised to find strings attached to their loans Such owner-managers full to realized that banks and other lenders have to operate by certain principles just as do other types of business This Aid discusses the following fundamentals of borrowing 1 credit worthiness 2 kinds of loans 3 amount of money needed 4 collateral 5 loan restrictions and limitations 6 the loan application and 7 standards which the lender uses to evaluate the application Introduction Inexperience with borrowing procedures often creates resentment and bitterness The stories of three small business persons illustrate this point Ill never trade here again Bill Smith said when his bank refused to grant him a loan Id like to let you have it Bill the banker said but your firm isnt earning enough to meet your current obligations Mr Smith was unaware of a vital financial fact namely that lending institutions have to be certain that the borrowers business can repay the loan Tom Jones lost his temper when the bank refused him a loan because he did not know what kind or how much money he needed We hesitate to lend the banker said to business owners with such vague ideas of what and how much they need John Williams case was somewhat different He didnt explode until after he got the loan When the papers were ready to sign he realized that the loan agreement put certain limitations on his business activities You cant dictate to me he said and walked out of the bank What he didnt realize was that the limitations were for his good as well as for the banks protection Knowledge of the financial facts of business life could have saved all three the embarrassment of losing their tempers Even more important such information would have helped them to borrow money
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