Like any business owner who has already had a business loan knows, lenders have always used “stress tests” to determine whether firms are likely to survive, must receive the loan they need, or should be forced into bankruptcy. They just do not call them stress tests (unless they referred to them internally).

Limit the owner’s salary and company bonuses, and the ability to pay dividends until the loan is paid to specified levels has also been part of any package ready for business.

While the government, as lender is doing is just normal business practice.

I do not know what the measure sticks are used as a stress test for banks. But I had much experience with what the banks themselves use tests when they are on the other hand, in their role as lenders.

In what now seems like a previous life, I launched several small manufacturing companies at different times, were built until they were substantial and, to sell them. In the process I often use bank loans to get started, and subsequent loans to accelerate growth or to buy competitors.

Stress tests imposed on my business by the banks were very similar to the tests, the government applied to self-responsible, and is now using that for banks.

Basically, once again, that any small business owner knows, he began by providing a written business plan that made sense, that showed how the loan would be used to achieve the goal, is to launch a successful new business or generate growth once the business has been operating successfully. This is a test, manufacturers have apparently not the right of the door, unable to come up with a credible plan in writing how they use the government bailout loans to turn their ailing companies around.

A business plan also includes pro-forma financial projections of what the financial situation of the company will be after the loan, and in the future. Considerations include whether the “ratio”, a method of measuring a company’s financial liquidity will remain within acceptable limits of society will be able to easily meet all its targets and still be able to make payments loan.

These measures of financial health are part of ongoing stress tests “that each quarterly financial report is sent to the bank. Either the current ratio, for example, fall within acceptable limits and that you will have some explaining to do.

To ensure that the borrower use the loan for business and said do not siphon some of it for personal use through salary increases and bonuses (like many banks seem to make first tranche of Treasury Secretary Henry Paulson ‘TARP restricting loans last year), the corporate loan agreements generally limit the salary of the owner of the company, bonuses and dividends until the company can to identify them clearly, without jeopardizing the loan.

Is it possible to bypass certain restrictions? Like any small business owner also knows, the answer is yes. Banks are dealing with all types of businesses and can not know the inner workings of each business type in the details. So there is no way they can cover all possibilities. There are always ways for a landlord to increase his remuneration quietly that the company succeeds, without waiting for the bank to remove its restrictions.

Is there pressure to repay the loan early to get out from under the restrictions, even if it pays at the beginning not the best use of earnings for the company? Absolutely.

So what happens now seems fairly normal. Except that it is on a much larger scale, of course, and is under the probe, but not always understood, the eyes of public and media.

The Government in its role as lender, is finally beginning to follow good business practice and lender requiring written business plans, the application of stress tests on borrowers, and limiting the salaries and bonuses.

But the government has the same banks have problems when they make loans to businesses. It is impossible to know (or quickly learn) as well on the details of how these banks operate complex as insiders know. Thus, the control will not be perfect.

This is how it goes in business. There are not many who can make perfect shots without too restless and make progress to stop.

However, if I like what the government today, I wonder if things will turn right by the results of stress tests public.

Let’s put in the perspective of local businesses that are near your home loan with local banks. Neither the public nor the investors in these banks said that local companies may be close to financial difficulties. All investors can know the level of bank losses and overall loan loss provisions, not the names of individual firms in potential difficulty. And for good reason. This knowledge should provide some of these companies would not (and do not repay their loans), because customers would leave, and other businesses continue to do business with them, except for money.

But taxpayers, holders of stock in the financial system now, they insist that the banks are not individual well in stress tests, and information will be released May 4

Unintended consequences can be tumultuous financial sector that the government’s efforts aimed at stabilizing the same way as a list of people in financial difficulty or businesses in your area could roil trust and the conditions for some time.

For example, applicants will create works on their banks if they are designated as not doing well in stress tests? Investors bail out their stocks in panic and send the financial sector reeling again?

Sy Smith publishes the financial website www. StreetSmartReport. com and a free daily Internet blog at www. SyHardingblog. com. In 1999 he authored Riding The Bear – How to prosper in the market from Bear. His new book is to beat the market with ease! – The performance of market-tested strategies Season Double!