“Banks only lend money to those who don’t need it.” Discuss how this old saying might...

“Banks only lend money to those who don’t need it.” Discuss how this old saying might apply to start-up entrepreneurs.

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Expert Solution

Bank provides loans to all those who fulfills basic criteria of receiving loan. It includes submission of proper documents, loan repaying capacity, collateral security etc.

In some cases, people require loan but cannot fulfill above mentioned criteria. Even if they having unpaid previous loan balance, they cannot apply for new loan from banks.

In case of new entrepreneur also they don't have proper documents of new registered business.
For business investment required loan amount is large and collateral security for this amount of loan cannot be made available for them.
As it is new start up business, there is uncertain about incomes and profits of the business,so bank cannot sanction business loans with uncertainty about repayment. As business takes time to survive and settle in the market, they cannot show their income statements at an early stage. Because of all these reasons, banks may reject many applications for loans of a new entrepreneur.

So it is true that banks only lends money to those who don't need it.

Rahul Sunny answered 1 week ago

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