Loan Applications and Risks
November 27th, 2018

Small business lending for banks is high-risk even in good times.  So if you are planning to make an application for a loan, think about this.  Small businesses tend to have a higher failure rate than larger ones, often simply because they have not had enough time to build up a cushion against bad times.  So rather than try to put only a positive spin on the benefits of your application, how significant your sales growth has been etc., consider adding something on risk factors and how you plan to deal with them.  You know it’s a risk.  The bank knows it’s a risk.  All public offerings of any kind of securities have a section on risk factors because of the laws of full disclosure to protect investors, and the bigger the offering the more the risk factors listed – sometimes going on for pages. 

So if you have something addressing risk factors in your loan application, or even in a preliminary conversation, it says to the lender “I know that there are risks in this loan, but here are the ones I see and how I plan to deal with them (in order to get your loan paid back).  I’m reasonably sure that most small business lenders have hardly seen anything like this, and it might just make a difference to you getting the loan.  You have nothing to lose.  Full disclosure might make you a winner.


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