The Criteria for Getting a Small Business Loan
By John J. OCallaghan
I have a friend who is manager of a large bank. He recently told me how he
evaluates a request for a business loan.
The most important factor to consider is the person. Essentially we are
lending to the individual, and more often than not, the success or failure of
the business, depends on the person.
I use the following five point lending criteria. The five points must be
considered links in a chain, each one being reliant on the previous one, and
with the strongest link being the first criteria --namely the strength of the
borrower.
1. I try to judge the person on success potential based on his character, his
integrity, his reputation or track record and business history.
2. I examine how well the case is presented. I take into account the extent of
the homework, the market research and the business plan.
3. I look for the ability to repay the loan. I take into account
profitability, projected cash-flow and potential,
4. I consider whether theres likely to be much of a profit in it for the
bank.
5. I look at the security or risk factor, taking into account the business
assets or collateral that may be available. This is the last and least
important criteria.
One of my favorite stories about bank managers concerns the entrepreneur who
allegedly went into Chase Manhattan Bank at Kennedy Airport, New York and
asked to see the manager. I want to borrow $1,000 for a couple of weeks he
said. What security do you have to offer? the manager inquired. I have a
1997 Cadillac worth about $30,000. The manager took the car and loaned him
the money. Fifteen days later the man came back, paid off his loan plus a $40
fee. As he was handing him back his keys the manager said, I am curious as
to why you needed the money. When I checked I found you own a large company
with considerable funds already on deposit in Chase Manhattan! The
entrepreneur smiled and said, True. I didnt need the money. But,I was going
on vacatio
rida for a couple of weeks. How else could I have parked my
car so securely and convieniently for $40?
Extracted from How to Make Your First Million a report by John
J.OCallaghan. E mail for more info. Subject: Million. JohnOC29(a)aol.com
###
###