Question

Please, address each of the questions below, in 100-150 words (per question). Include any relevant examples and links to your sources.

1. What are some benefits of being a company owner / manager

2. How can borrowers' decisions affect the lenders, after the loan is originated?

3. How do creditors protect themselves against harmful actions by stockholders?

Answer 1

Part 1) Benefits of being Company Owner/ Manager

1. Independence. As a business owner, you’re your own boss.
2. Lifestyle. Because you’re in charge, you decide when and where you want to work.
3. Financial rewards. In spite of high financial risk, running your own business gives you a chance to make more money than if you were employed by someone else.
4. Learning opportunities. As a business owner, you’ll be involved in all aspects of your business.
5. Creative freedom and personal satisfaction. As a business owner, you’ll be able to work in a field that you really enjoy, and you’ll gain personal satisfaction from watching your business succeed.

Example:- Ratan Tata owning Tata Group of companies and enjoying his lavish life and independence and freedom.

Part 2) Borrower's Decisions affecting Lenders, after Loan is orginated

Borrowers's decision of use of originated loan amount can affect the lenders. Like if borrowed loan is invested in an asset which reaps out lesser benefits than expected, then there would be insufficient income which could cope up the principal and interest payments of loan ultimately leading the lenders in difficult position.

Example- usage of Term Loan in which kind of assets like fixed assets or using it as working capital. If Term Loan is invested in fixed assets, then it will provide the future economic benefits which would be beneficial and will self generate income in paying the EMI , but if term loan is invested in working capital, then it will be blurred out in day to day activities

Part 3) Ways for Creditors to protect themselves against harmful actions by stockholders

Creditors can protect their rights by becoming secured creditors. Secured Creditor is any creditor to whom your business has pledged collateral in exchange for loan, line of credit or purchase. Example:- Car Loan where the car you bought is collateral for the loan.

In case of banruptcy, lender can ask banruptcy court for permission to proceed with a foreclosure of your payments.

Filing a suite against the company and winning the judgement.

Check to see if any liens are recorded against your business.