Loan advice

Loans to small companies terrify management at many larger banks and in many countries a small number of banks tend to specialize in lending to these segments:

They are sufficiently large individually to require personal attention. This is not the case with retail loans where little or no attempt is made to take account of changing borrower circumstances. They are made to companies operating in many diverse manufacturing and service businesses. This means that they are not readily amenable to statistical analysis nor does the bank have the in-house expertise to assess prospects for all these sectors. They are sufficiently large collectively that a high level of losses on loans made to companies in this segment would have a material impact on a bank’s financial position. As a group, SMEs are hit disproportionately hard by economic downturns. This can be seen by the massive increase in failures of companies in this segment as reported by bankruptcy figures through recessions.
They are sufficiently small that they fall outside the scope of rating agencies’ coverage.
Their business risks are not well diversified and losing one major customer may be sufficient to cause an otherwise healthy company to fail.
Collateral values often depend on the company operating as a going concern.
In most instances a single bank is the major financial creditor. There can be safety in numbers, at least for credit officers, where the borrower has defaulted.