Question

A quote from an article on the Internet on short-term financing: “lenders favor businesses that exhibit strong management, steady growth potential and reliable projected cash flow…” What do you think they mean by strong management?

Answer 1

Here the statement is apt because any lender when lending funds wants to make sure that the fund will be repaid back by the company with interest and there should not be default. The strong management means that management should be capable and have the authority to act in the best interest of the company. The word capable here is with reference to the abilities, their past performance and how they dealt in the past if unexpected circumstances arise, their educational background and ethics of the management. These things are very important from the perspective of the lender because a manager who is capable can deal with any situation and make the best out of that situation and the probability of the default on the loan would be low. The educational background is also important as it helps the manager in understanding the industry. The ethical level is important because manager should not have the intention to deceive the shareholder or benefit himself at the expense of other stakeholders. The authority is important as if he is taking action then he should have the support of his other colleagues and members from the board of director.