Ken needed $100 000 to start his restaurant. He sought advice from W Bank. Pamela, the loans officer

Ken needed $100 000 to start his restaurant. He sought advice from W Bank. Pamela, the loans officer at the bank, suggested a working capital loan on certain specified terms. She assured Ken that he should have no problem being approved if he decided to apply for a loan. The approval process took longer than usual, but Ken went ahead and signed a lease for space for his restaurant and a contract for renovation of the space. Eventually, W Bank rejected Ken’s application. Based on recent experience, the bank decided that restaurants are too risky since most do not last beyond six months. Ken was unable to arrange alternative financing in time and suffered a large loss in his business. Is this a typical banking relationship where Ken must look out for himself, or does the bank have some responsibility for his plight? What should Ken and the bank have done differently?

 

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