Collateral is a valuable asset pledged to assure loan repayment and is subject to seizure upon default. That means, if you fail to live up to the terms of the credit agreement, the collateral can be sold to pay off the debt. The basic question of conditions focuses on the security of both your job and the company for which you work. Creditors use different combinations of the above facts to reach their decision. Some creditors set unusually high standards, and other simply do not make certain kinds of loans.
Creditors also use different kinds of rating systems.
Some rely strictly on their own instinct and experience. Others use a credit-scoring or statistical system to predict whether you are a good credit risk. One of the reasons for this is that creditors may feel that the income stream from a small business is less secure than income received as an employee. Also, the creditors may worry about verifying the amount of income actually generated by the small business. If the IRS finds that the business owner reports more income on the loan application that he or she included on an income tax return for the same period, the IRS may audit the owner, looking for an explanation why additional tax is not owed on the amount of the unreported income.