Entrepreneurial Project Selection and Lender Risk
Based on the scenario provided, analyze which project the entrepreneur is more likely to pursue if they can secure 100% loan financing. Explain how this choice illustrates a potential conflict of interest between the entrepreneur and the lender.
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Ch.9 Lenders and borrowers and differences in wealth - The Economy 2.0 Microeconomics @ CORE Econ
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A commercial bank is reviewing two loan applications for funding new, high-risk restaurant ventures. Both proposals have similar business plans and market potential.
- Applicant A is seeking a loan for 100% of the required startup capital.
- Applicant B is seeking a loan for 50% of the required startup capital and will be investing their own personal savings for the remaining 50%.
From the bank's perspective, which applicant poses a lower risk related to the owner's commitment to the project's success, and why?
Analyzing Business Failure and Funding Structure
Founder Incentives and Personal Investment
Entrepreneurial Decision-Making and Funding Source
From a lender's perspective, a business proposal's potential for success is determined solely by the quality of the business plan and market conditions, making the source of the entrepreneur's funding (personal vs. borrowed) an irrelevant factor in the loan decision.
Match each business funding scenario with the most likely implication for the borrower's diligence and the associated risk to the lender.
Entrepreneurial Project Selection and Lender Risk
Venture Capitalist's Investment Decision
Lender Pricing and Borrower Incentives
Designing a Loan Assessment Tool
Entrepreneurial Decision-Making and Funding Source