Common Problem in Business Management - Assignment Example

Download file to see previous pages It would help a lot if the person whom the entrepreneur approaches in getting loans knows them personally and can trust them. Maintaining good relationships with bank managers will greatly increase the chances of the entrepreneur of getting financial support from the bank as the manager will identify will the entrepreneur.
In a study conducted by Cressy (1996)3 and Petersen & Rajan (1994)4, there are bankers who attached more weight to human capital than the business itself.5 By nature, bank managers have different attitudes toward risk. While others are conservative, others may be more open to possibilities. Knowing the attitudes of the bank manager is therefore crucial as bank managers have the discretion to grant loans up to a certain limit. Within the discretion limit of the bank manager, his/her power to grant a loan is absolute. This makes good relationships with bank managers a very good asset when trying to get a loan for start-up or for expansion of the small business. The key here is to build a good and strong relationship with bank managers and at the same time position the business in such a way that it will show good prospects for success. After all, bank managers will not grant the loan on a whim even if it is still within his/her discretionary limits. Most of the bank managers have their own set of standard criteria, which they use in evaluating loans. These criteria may be any or all of the following: (a) business security (b) personal guarantees, (c) business prospects (d) loan applicant and the amount of equity that the applicant is putting into the business.
Perrow (1979)6, observed that when bankers are faced with similarly situated loan applicants and it is very hard to discern which one should be given priority, “we rely on familiarity.” ...Download file to see next pages Read More