The paper 'Managing the Risk of Small Business Loans, Strategic Risk Management " is a good example of a management article. There are various sources of loans for small company owners and businesses. These include Standard Business Loan, which is usually awarded by banks at a certain amount of interest. The applicant accompanies this kind of loan with various actions in case of failure of repayment. These may include the seizure of assets (Kimberley, 2005). There may be also other restrictions from the lending bank such as, requiring you to sign up for a business bank account that allows you to carry out the transactions with them, which may be inconvenient to the applicant (Melicher, 2010). Loans may also be obtained from members of a family or friend.
This type of loan is accompanied by loss of personal relationships in case of default. Entrepreneurs who want to fund their businesses with a small loan have to put into consideration the five C’ s of credit (Chandra, 2005). This allows the lender to determine the creditworthiness of the applicant. Cases such as a loan beneficiary defaulting to pay back the loan are likely to be minimised.
As a result, the lending institutions are made operational continuously thus preventing their collapse. It also helps the applicant to know whether he will be able to settle the loan after applying for it. This article gives a guide into ways in which small business loans can be analyzed in order to know whether it is right for lending institutions to give loans to small business and company owners. Loans may also be obtained from Small business administration SBA’ s.
This is more guaranteed because, in case of default by the beneficiary, the lender receives the majority of his investment back from the government. Personal Commentary: The first way of analyzing creditworthiness is the use of capacity analysis as noted in the article. Repayment is the most critical of the factors to consider. It is important for the prospective lender to know how the applicant intends to repay the loan. The lender will review the cash flow of the business and the likelihood of repayment of the loan.
Kaplan, S., Mikes, A., Simons, R., Tufano, P., and Hofman, M., 2009. Managing Risk in the New World. Harvard Business Review, October, p.72
Waring, A.and Glendon, A., 1998. Managing Risk. London: Cengage Learning p.65
Bank of England, Report of the board of banking supervision inquiry into the circumstances of the Collapse of Barings, 1995, cited from: http://www.numa.com/ref/barings/bar00.htm