Small Business Credit
Small business credit involves special issues that might not be relevant in bigger business loans or even personal credits.
Bigger businesses can provide “collateral” and are also likely have past performance record, which helps it get loans easily. Creditors are mostly concerned that loans would be repaid, by means of collateral in the form of; let’s say a house and lot, factory building or anything that have bigger values. Past performance of the loaner would also give the lender an idea about its business capabilities.
On the contrary, SB credits are far more risky, for it might not have the resources to survive heavy competition. In the case of the new borrower or new enterprise, there would be no past performance which the lender can rely on or refer onto.
We can be sure then that small businesses may not have a collateral security to offer as well’ if the lenders insists on the business owner’s personal residence a collateral security, the entrepreneur might have second thought of not going through his business. And in the end decides not to go ahead with the business idea anymore.
However, the government recognizes the importance of small business to the economy of a country. Small businesses provides far more employment than big businesses, they are also the source of much innovations. Hence in most of the countries today, small entrepreneurship is much encourage to its people.
The government typically provides help to facilitate SB credits; they’re the ones that provide guarantees to the lenders. Ensuring them that the government will shoulder the lender’s loss if the borrower fails to repay its debt. However, the government would make sure that there is a sound business proposal before getting involved; allowing the new entrepreneur to avail the SB credit with ease.