BUS 5115: Business Law, Ethics and Social Responsibility

Portfolio Activity: Unit 4

University of the People
July 16th, 2019
Every manager has different skills, and specialties of expertise.  It is quite possible
that you could be in a situation where you see something that someone else does
not see, especially if they are working under you with less education or experience
than you.  If a loan officer working under you recommends a loan to a customer,
describe (A) when you would authorize that loan, and (B) when you would deny
the loan in each of the following cases and give your rationale.

1. You disagree with your subordinate because you do not think

restaurants are good investments in general, so you have a bad feeling
about this customer's ability to repay the loan based on your experience
with the market rather than any financial facts.

In all Financial and loaning institutions, there are rules and regulations that
determine the authorization of a loan. Chellappa, C. (n.d.), suggests ten things you
should possess before applying for a restaurant loan from a financial institution.
Among the things one should possess when seeking a restaurant loan are
sustainability, viability, financial documents, relevant business experience, good
credit history, cash on hand, and the like. Furthermore, the organization seeking
the loan should prove that the business is profitable and show that they can pay
back the loan by presenting some security.

In the case above, I should not base my refusal of a loan to the restaurant just
because ‘I do not think’ generally that restaurants are a good investment and use
that personal feeling to deny a customer loan facility. However, I should look at
the facts on a case by case basis without any bias and make a judgement based on
the facts, not my feelings.

It is also necessary as a loan official to do a market analysis to better understand

the current restaurant market before making a final decision. If it happens that the
client has a good credit score, has a good reputation and financial assets, then the
loan will be approved.

2. You disagree with your subordinate because you think medical

operations are high risk for legal problems, so you have a bad feeling
about this customer's ability to repay the loan based on your experience
with the law rather than any financial facts.
 In this scenario presented above, the risk assessment here is that medical
situations are high risk and not the best situation to provide loans. What if the
client dies during the medical operation? In this case, if there is a surety that can
pay back the loan in the case of an eventuality, then I may give the loan, but in
the absence of a surety, I will not give the loan because it is too high a risk.
However, making a judgement to give the loan based solely on the law, rather
than financial facts, will be somewhat biased against the client because if the
client can show financial facts to prove payment, then the decision should be
weighed using both the law and the financial facts.

3. You disagree with your subordinate because you think members of their
family are business failures, so you have a bad feeling about this
customer's ability to repay the loan based on your experience with social
history rather than any financial facts.

Family history is not a factor to be considered when giving out a business loan. In
giving out a loan, the factors that come to play are: The purpose of the loan,
significance of character, collateral, how loan can be repaid, capital and overall
economic situation. (Woodruff, J., & Seidel, M., 2019, January 28).

Approval of the loan in the case presented above should be based not on family
history, but rather the character of the individual or institution in question.
However, an evaluation of the individual’s credit/financial history and social
history should be made, and a determination made whether to grant the loan or not
and if the individual has the capacity to repay. Just using social history as a
determinant factor to deny a loan will be missing the bigger picture.

4. You disagree with your subordinate because you just have a bad feeling
about this customer's ability to repay the loan based on your gut instinct
rather than any financial facts.

At financial institutions, loans should be given out based on set criteria, not gut
feelings. The factors to consider when giving out a loan at a financial institution
are: The purpose of the loan, significance of character, collateral, how loan can be
repaid, capital and overall economic situation. (Woodruff, J., & Seidel, M., 2019,
January 28). Giving out loans should be fact based, and justifiably determined not
fiction.
References:

Chellappa, C. (n.d.). 10 Things to Know Before Applying for a Restaurant SBA Loan. Retrieved
July 16, 2019, from http://foodstart.com/10-things-to-know-before-applying-for-a-restaurant-
sba-loan/
Woodruff, J., & Seidel, M. (2019, January 28). Things for a Bank to Consider Before Lending
Money to a Business. Retrieved July 16, 2019, from https://smallbusiness.chron.com/things-
bank-consider-before-lending-money-business-57341.html