Question

Suppose I need to model a bank which provides loans to different companies. Further suppose that the only companies in my data model are those to whom I am providing loans or have provided loans in the past.

What is the appropriate minimum cardinality for the relationship between LOAN and COMPANY?

Suppose I need to model a credit card company where each customer can receive up to one credit card and each card can be sent to only one address.

What is the appropriate maximum cardinality for the relationship between CUSTOMER and CARD?

Suppose I need to model a university where students can, but do not have to, participate in extra-curricular activities. Each such activity can have zero or more participants.

What is the appropriate minimum cardinality for the relationship between STUDENT and ACTIVITY?

Suppose I need to model a university where students can have up to three majors (i.e., can be part of three departments).

What is the appropriate maximum cardinality for the relationship between STUDENT and DEPARTMENT?

Suppose I need to model a hardware store with varying inventory. That is, not all products will be sold at any given time.

What is the appropriate minimum cardinality for the relationship between STORE and PRODUCT?

Answer 1

• So here’s what to expect a bank to ask for when you apply for a commercial loan for your business. There will be occasional exceptions to every rule, of course, but here’s the general rule:
  
  1. Collateral
  As I explained above, banks do lend money to startups. One exception to the rule is that the federal Small Business Administration (SBA) has programs that guarantee some portion of startup costs for new businesses so banks can lend them money with the government, reducing the banks’ risk.
  
  So your business has to have hard assets it can pledge to back up a business loan. Banks look very carefully at these assets to make sure they reduce the risk. For example, when you pledge Accounts Receivable to support a commercial loan, the bank will check the major receivables accounts to make sure those companies are solvent; and they will accept only a portion, often 50 or sometimes 75%, of receivables to back a loan. When you get an inventory loan, the bank will accept only a percentage of the inventory and they will kick a lot of tires first, to make sure it isn’t old and obsolete inventory.
  
  The need for collateral also means that most small business owners have to pledge personal assets, usually house equity, to get a business loan.
  
  See Also: The Complete Guide to SBA Loans
  2. Business plan
  There are exceptions, but the vast majority of commercial loan applications require a business plan document. Nowadays it can be short—perhaps even a lean business plan—but banks still want that standard summary of company, product, market, team, and financials.
  
  See Also: Introducing Lean Planning: How to Plan Less and Grow Faster
  3. All of your business’s financial details
  That includes all current and past loans and debts incurred, all bank accounts, investment accounts, credit card accounts, and of course, supporting information including tax ID numbers, addresses, and complete contact information.
  
  4. Complete details on Accounts Receivable
  That includes aging, account-by-account information (for checking their credit), and sales and payment history.
  
  (And if you don’t know what your Accounts Receivable are, then count your blessings. If you had any, you’d know. Or, read our guide to find out.)
  
  5. Complete details on Accounts Payable
  That includes most of the same information as for Accounts Receivable and, in addition, they’ll want credit references, companies that sell to your business on account that can vouch for your payment behavior. If you need to know more about Accounts Payable, just read our guide that explains things simply.
  
  See Also: Small Business Owners, Start Tracking Your Financial Metrics
  6. Complete financial statements, preferably audited or reviewed
  The balance sheet has to list all your business assets, liabilities and capital, and the latest balance sheet is the most important. Your Profit and Loss statements should normally go back at least three years, but exceptions can be made, occasionally, if you don’t have enough history, but you do have good credit and assets to pledge as collateral. You’ll also have to supply as much profit and loss history as you have, up to three years back.
  
  Regarding audited statements, having “audited” statements means you’ve paid a few thousand dollars to have a CPA go over them and take some formal responsibility for their accuracy. CPAs get sued over bad audits. The bigger your business, the more likely you’ll have audited statements ready as part of the normal course of business for reasons related to ownership and reporting responsibilities.
  
  Having statements reviewed is a lot cheaper, more like a thousand dollars, because the CPAs who review your statements have way less liability if you got it wrong. Banks won’t always require audited or even reviewed statements because they always require collateral, assets at risk, so they care more about the value of the assets you pledge.
  
  7. All of your personal financial details
  This includes social security numbers, net worth, details on assets and liabilities such as your home, vehicles, investment accounts, credit card accounts, auto loans, mortgages, the whole thing.
  
  For businesses with multiple owners, or partnerships, the bank will want financial statements from all of the owners who have significant shares.
  
  And yes, as I implied in the introduction to this article, that’s leading to the personal guarantee. Expect to sign a personal guarantee as part of the loan process.
  
  8. Insurance information
  Since it’s all about reducing the risks, banks will often ask newer businesses that depend on the key founders to take out insurance against the deaths of one or more of the founders. And the fine print can direct the payout on death to go to the bank first, to pay off the loan.
  
  9. Copies of past returns
  I think this is to prevent multiple sets of books—which I think would be fraud, by the way—but banks want to see the corporate tax returns.
  
  10. Agreement on future ratios
  Most commercial loan include what we call loan covenants, in which the company agrees to keep some key ratios—quick ratio, current ratio, debt to equity, for example—within certain defined limits. If your financials fall below those specific levels in the future, then you are technically in default of the loan.