A Tale of Two Borrowers (Case Study)

A Tale of Two Borrowers

(Case Study)

1.       One of these businesses received a bank loan and the other did not. Describe the differences between the two companies that led to one entrepreneur receiving the financing he needed and the other one failing to qualify for a loan.
      The differences in the two businesses from the bank’s perspective can be based on many factors that may have played a part in the loan decision:

Credit rating: The bank will want to review both the credit history of the business and Andy because a personal guarantee is often required for a small business loan.
The cash flow from a business operation and the cycle of cash flow, from the purchase of inventory through the collection of accounts receivable, is the most important factor for obtaining short-term debt financing.
Collateral: When lenders demand collateral for a secured loan, they are seeking to minimize the risks of extending credit. In order to ensure that the particular collateral provides appropriate security, the lender will want to match the type of collateral with the loan being made.

Finally, the decision may depend on their (Past experience - Education - Business concept) and many other factors.        

2.      What steps would you have recommended to Andy Shallal to increase the probability of qualifying for a loan?
      I recommend that Shallal must attempt to gain experience, and demonstrate a thorough understanding of her business and the market, also she must take steps toward improving her credit rating if needed, and outline a detailed business plan to meet the bank’s requirements.

3.      Suppose that Shallal had approached you for help after being turned down by three banks. What other sources of capital would you have suggested she use?
The potential list that Shallal might consider may include the following choices:  
1.      Asset-based lenders
2.      Trade credit
3.      Equipment suppliers
4.      Commercial finance companies
5.      Saving and loan associations
6.      Stock brokerage houses
7.      Insurance companies
8.      Credit unions
9.      Bonds
10.  Private placements

11.  Small Business Investment Companies (SBICs)