Business Finance Current Event Discussion

The article is about a financing program that was launched in America to help the small businesses to survive through tough economic times. The program was designed in such a way that the borrowers first had to apply for the loans from the banks and then wait for a response from the same. In the event that one qualified to get the loans, he would be given the loan to finance his business operations. However, before obtaining the loan, one had to prove that they had the capability of repaying back the loan advanced to them. One way of proving that capability was through issuing of cash flows of the business for the past one year.  Washington officials were objective that the program would come in handy to save a number of employed personnel in the business industry as well as save the vulnerable business situation.

The program however kicked off on a low note, a factor attributed to the reluctant nature of the banks. Most of the banks were for the idea of implementing the program due to the marginal profits that the banks would have made out of such business.  For instance, a loan worth $ 35, 000 would be repaid back for a period of up to six years meaning that the banks would make very little profits out of that money.  Bob Seiwert who is a member of the American Bankers Association argued that for the program to be implemented successfully then the loans limits must be increased. The arguments by Bob could have been valid but such high loan limits would have proved to be uneconomical for the small businesses.  One reason as to why huge loans would be uneconomical is due to the ever changing value of money. The present value of one dollar today will definitely be different from the future value in two years’ time. Therefore if the business is subjected to high loans then it means that they will have to repay large amounts of interest in the future. Paying such large amount of interest would not be economical since the businesses are already struggling to get finances, leave alone making enough profits.

The idea of business coming up with a cash flow statement of their business for the last two years is a good idea since it helps in knowing the risky and non-risky borrowers. Businessmen who thought that they could use the program to settle their other debts elsewhere were easily locked out by the banks. For instance, Mr. Rusin wanted to borrow money so that he could use it to pay his vendors. Rusin was locked out because the bank wanted him to get the loan and repay the debt he owe the bank.

In conclusion, businesses must be aware that for them to get financing from the banks, they must always present their financial statements of the previous years to be used as background checks. Such statements also reveals whether the businesses pays corporate taxes or not, and that will also be used to judge whether the borrower is a risky or non-risky borrower.

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