Banks consider factors such as external environment, industry outlook, macro level trends, state of the economy, government’s monetary and fiscal regulations, impact of natural events such as hurricanes, extent of competition and other factors over which the business owner has no control. Banks also consider some factors such as viability of the proposed location of the business, under some control of the business owner.
Banks considering such conditions help business owners, for denial of loan owing to unfavorable conditions reveal the risky nature of the investment, and approval of the loan confirms the strength of the proposal. Banks, however, may also take decisions based on how the business owner proposes to handle such eventualities. A good project report needs to undertake a thorough SWOT analysis, and include contingency plans and a risk management approach in detail.
At times, regardless of any other factor, the bank simply may have low capitalization and may not be in a position to extend fresh loans to anyone, regardless of the attractiveness of the proposal. The U.S. banking regulators require banks to hold at least eight percent of their “risk-based" assets as reserves.
Banks adopt requirements for lending money to businesses, for unlike venture capitalists who share both profits and losses, they take a fixed and usually low return, and in return, do not entertain much risk.