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The ABC's of Borrowing GOV5
Summary
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.
"I'll never trade here again," Bill Smith said when his bank refused to
grant him a loan. "I'd like to let you have it, Bill," the banker said,
"but your firm isn't 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 borrower's 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 didn't explode until after
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