Question

You are the loan manager of XYZ bank and Joe Simmons has applied to you for a loan to start a new business or expand his current business.

What criteria would you use to evaluate whether to grant the loan and how would you determine the terms and conditions of the loan?

You will need to select a hypothetical small business to use as your basis in answering this question. (Joe's Cigar Bar & Lounge)

Answer 1

There are following general criteria for a lender (bank) to evaluate while granting a loan to a small business:

• Credit History of the borrower business;
• Collateral available from the borrower to securitize the loan;
• Personal Character of the borrower;
• Past year Income tax returns,
• Business Model, Product line and prospective marketing plans;
• Cash Flows of the business and projections for the coming years.

The terms and conditions of the loan will include:

• Repayment Schedule;
• Interest Rate;
• Collateral sell-off conditions and procedure;
• Late payment fee;
• Stock and Debtor Verification Procedures;
• Regular credit check policies; etc.