Small Business Loans provide a viable way for entrepreneurs to fund projects and growth their businesses. In most cases, lenders require collateral to mitigate the risks associated with loans. The value of collateral should always be enough to meet the obligations of the borrower, but this does not mean business lending has a different composition of risk (as a result, there is need for provisioning and capital adequacy).
This further confirms the basic postulate of small business lending. However, the problem is that in the event of non-payment the creditor cannot just write off the debt and the borrower is obliged to take all measures to clear the balance. Polls show that the financial institutions prevent these scenarios by conducting thorough assessments prior to approving the loans.
On the other hand, writing off the debt of the borrower means that the latter incurs material gain and the need to pay tax on personal income.