Class 9 Bank

Class 9 Bank - BADM 242 Venture Management University of...

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BADM 242 – Venture Management University of Connecticut School of Business I. Dealing with the business lender A. Borrowers are frustrated with lenders who appear uninterested B. Borrowers are indignant about the conservative approach lenders utilized to underwrite business loans. 1. Lenders are adverse to risk 2. For the risk that lenders elect to accept, they protect themselves by having several ways to liquidate the investment. 3. Lenders are responsible for providing a paper trail 4. The time and effort it takes to pacify bank regulators and comply with federal regulations have become inproportionately large cost of doing business. 5. Comptr4ooler of the currency estimates that 14% of the average banks operating costs are directly attributable to the cost compliance with various laws and regulations. C. The lender is in business also 1. They are responsible for returning profits to their shareholders whether they are a stock or mutual institution. 2. The cost of capital to the lender is constantly changing 3. Lenders have to manage federal and state regulators D. Loan officers spend most of their time concentrating on underwriting many various business entities. 1. They know a little about everything but not much about anything. 2. They have a limited perspective of the mechanics of hundreds of different businesses. 3. They normally act single mindedly to protect the interest of the bank not the borrower. E. Some regional-sized banks have a policy of not accepting risks in commercial loans to small business. 1. Their policy is to accommodate opportunities in the market so long as their funds are not truly at risk. 2. Small borrowers should look to small lenders A) Connecticut development authority (CDA) will seldom lend to start-ups. B) Many lenders will not lend to restaurants or provide “floor plans” and the like. F. Application for the business loan 1. Considerable information is normally required. 2. Enables the lender to evaluate the business. - Its management performance, products/services, and prospects for success. 3. Lender must be convinced that the borrower understands this fundamental information and is capable of using his/her knowledge to succeed. 4. Focus of preparing a loan application should be to utilize the information which is available to the borrower as a primary function of good management. A) Is the business earning money? January 18, 2007 Page 1 of 12 //home/vdimitrov/25473/276c948cf29f5b4023741b8e4104c0a70ed076a2.doc
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BADM 242 – Venture Management University of Connecticut School of Business B) How string is the cash flow? C) What are the long-term trends of the financial results? 5. Information protects the borrower and the lender G. Lender is in the business to lend money 1. Loans are made when the likelihood for repayment is high. 2.
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This note was uploaded on 04/17/2008 for the course BADM 242 taught by Professor Richardcheney during the Fall '07 term at UConn.

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Class 9 Bank - BADM 242 Venture Management University of...

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