There is another benefit from the use of debt capital that should not be overlooked. The loan to the rancher resulted in a profit for the lender, who can now loan out more money to other businesses in the community to continue the cycle of lending and reinvestment. Providing services and capital to borrowers Bank loans are the primary source of debt capital for small businesses. Banks traditionally have made money by making loans to businesses and consumers, so they have both the resources and expertise to finance business creation and expansion. Bringing bankers into the economic development partnership adds another level of expertise and imposes another level of discipline to the business plan or project.
Bankers review and evaluate loan requests, and weigh the risks and prospects for success.
In other words, they review whether the business will likely stay in operation and whether the borrower will likely make the loan payments. This risk evaluation can be viewed as technical assistance from the banker to the potential borrower. Lenders are protecting their assets when they say no to some loans, and they are also providing valuable advice to the potential borrower about the weaknesses of his or her business proposal. Many bankers also offer advice to potential borrowers about other sources of funding or assistance, for example education about business planning that may be tied to a revolving loan fund. In summary, a local banker can be a valuable resource to an entrepreneur, even if the loan request is not granted immediately.