Question

Harmon recently quit his job that he had worked at for the past 10 years in order to start his own business, a company that specializes in pet care services. He has a lot of good ideas, but doesn't havea firm business planA month after starting his new company, he applied for a loan at a bank so that he coud buy a new offiece space

Which of the following is likely to be true in this situation?

A) Harmon's loan application is more likely to be approved because of his prior job experience.
B) Harmon's loan application is less likely to be approved due to the lack of a firm business plan.
C) Harmon's loan application is likely to be approved quickly because of his good ideas.
D) Harmon's loan application is likely to be approved because he has a pet care services business.

Answer 1

Harmon's loan application is less likely to be approved by the bank due to the absence of a detailed business plan. A business plan is crucial for banks to assess risk and the viability of the business. Harmon's past job experience or the industry of his business are not as influential as a clear plan for success and repayment.

Step-by-step explanation:

When it comes to applying for a loan, banks are typically concerned with the borrower's ability to repay the loan. In the case of a new business without a solid business plan, it can be challenging for the owner to secure financing. Harmon's prior job experience may demonstrate a strong work ethic and relevant skills, but without a detailed business plan, the bank lacks critical information about the new company's potential for success and the specifics of how the loan will be used to grow the business.

Furthermore, a bank may view a lack of a business plan as a higher risk factor when evaluating a loan application. While Harmon has many good ideas, they are not a substitute for a formal business plan that outlines the financial projections, market analysis, and strategic plans that banks typically require to assess the viability of a new business. Also, simply owning a pet care services business does not guarantee loan approval.

Therefore, the most likely scenario is B: Harmon's loan application is less likely to be approved due to the lack of a firm business plan. To improve his chances of loan approval, Harmon may need to develop a comprehensive business plan that clearly demonstrates how his pet care company will become profitable and how the loan will be repaid.