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MGT602 - Entrepreneurship - Lecture Handout 34

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BANK LENDING DECISIONS

BANK LENDING DECISIONS

1. Banks are very cautious in lending money, particularly to new ventures.

  1. Commercial loan decisions are made only after the loan officer does a careful review of the borrower.
  2. Decisions are made based on quantifiable and subjective judgments.

2. Bank lending decisions can be summarized by the five C’s-Character, Capacity, Capital, Collateral, and Conditions.

  1. Past financial statements are reviewed in terms of key ratios and the entrepreneur’s capital invested.
  2. Future projections on market size, sales, and profitability are evaluated.
  3. Intuitive factors-Character and Capacity-are also taken into account and become more important when there is little or no track record.

3. The loan application format is generally a "mini" business plan.

  1. This provides the loan officer with information on the creditworthiness of the individual and the ability of the venture to repay the loan.
  2. Presenting a positive business image and following procedure are important in obtaining the funds.

4. The entrepreneur should borrow the maximum amount possible that can be repaid, as long as the prevailing interest rates and terms are satisfactory.

  1. Care must be taken to ensure that the venture will generate enough cash flow to repay the interest and principal on the loan.
  2. The entrepreneur should evaluate the track record and lending policies of several banks in the area.

  3. Read more: MGT602 - Entrepreneurship - Lecture Handout 34

MGT603 - Strategic Management - Lecture Handout 42

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STRATEGY EVALUATION

Learning objectives

This topic covers various aspects concerning with the strategy evaluation and enables you to understand the process of strategy evaluation.

Four Criteria (Richard Rummelt): He explains four criteria for strategy valuation. These four criteria are as follow

  • Consistency
  • Consonance
  • Feasibility
  • Advantage

Consistency
Strategy should not present inconsistent goals and policies.

  • Conflict and interdepartmental bickering symptomatic of managerial disorder and strategic inconsistency

Consonance
Need for strategies to examine sets of trends

  • Adaptive response to external environment
  • Trends are results of interactions among other trends

Feasibility
Neither overtaxes resources nor creates unsolvable sub problems

  • Organizations must demonstrate the abilities, competencies, skills and talents to carry out a given strategy

Advantage
Creation or maintenance of competitive advantage