The Federal Reserve Board released recently released requirements that should help businesspersons, even following personal bankruptcy in Massachusetts. In essence, the “Interagency Statement” requires banks to “understand the long-term viability of the borrower’s business, and focus on the strength of a borrower’s business plan, including its plan for the use and repayment of borrowed funds.” The regulations require that the lenders focus on local, not national, trends. Massachusetts debtors who have received a fresh start from bankruptcy should review the Fed’s directives when seeking loans.
The Interagency Statement is worth reading for any and all small business loan applicants. The following is from the Statement:
A borrower’s credit history and financial strength, including credit score, are components of assessing willingness and ability to repay, and should be considered in conjunction with other judgmental factors, such as the strength of management. The loan structure should be appropriate for meeting the funding needs of the borrower given the type of credit and expected timing of the business’ cash flow. Further, an institution should analyze the secondary sources of repayment, such as the strength of any guarantor or collateral support, and the ability of the borrower to provide additional capital. Institutions should not place excessive reliance on cyclical factors, such as appreciating or depreciating collateral values.