Credit rating of small business Research Paper Example | Topics and Well Written Essays - 500 words

Credit rating of petite seam - Research Paper ExampleSmall bank linees play an important role in the economy of many an(prenominal) countries. More importantly, many of them rely on banks to finance their businesses. Granting of loanwords to small businesses is an intricate matter that requires the bank to gather up information that helps it to assess the businesses ability to pay back the loan and not default (Frame & White, 2004). Hence, banks are resulting to utilize credit rating scores to determine if or if not to grant a loan to the business. The chief is if bad credit rating means a bank should not grant a loan to a small business owner to expand or invest in his business? why and why not?According to Petrovic and Davidovic (2011), loan granting to small businesses poses a test to banks. However, banks should give loans to small businesses ground on their credit rating. It has been found that small businesses having in-between credit ratings are likely to rely on loans from banks. Conversely, for small businesses that have low ratings, evaluation fails to avail reason to grant loans as they are mentation to have nothing to lose if they default (Petrovic & Davidovic, 2011). The credit rating of a small business borrower functions to guess future acts that the borrower will without evaluation. Hence, a bad credit rating will imply that the bank should not grant a loan to the business as the credit rating serves to predict the actions of the business afterwards getting the loan. The credit rating obtained aids in the formation of the banks decision (Diamond, 1991).On the other hand, bad credit rating should not be used to deny a small business a loan grant because banks do not have all the information concerning the borrower. rase if the bank obtains a good credit rating concerning the borrower that allows a bank to grant the small business a loan, the borrower may opt to default even if the business does