Is the bank making a reasonable request for collateral and guarantees?
Bankers look for both “primary” and “secondary” sources of loan repayment and for the sake of your business, you should, too. Smart business owners understand that now is the time to think about alternative repayment sources, not when their business gets into trouble. For most loans, the primary source of loan repayment will come from excess cash generated by the business over one or more operating cycles. Secondary sources of loan repayment will be in the form of collateral and/or loan guarantees. The key question you need to address when reviewing the loan proposal is how much collateral, and what amount of guarantee, is enough for this loan arrangement, given our firm’s financial track record, experience in the industry, ability to generate cash, and prior repayment history? The risks of over-collateralization to your business and personal financial health are real. If things don’t go as planned and you’re not able to pay off the loan “as agreed,” or if your firm is growing rapidly
