Fred Reinero has had a student loan, two auto loans, and three credit cards. He has always made timely payments on all obligations. He has a savings account of $2,400 and an annual income of $25,000. His current payments for rent, insurance, and utilities are about $1,100 per month. Fred has accumulated $12,800 in an individual retirement account. Fred's loan application asks for $10,000 to start up a small restaurant with some friends. Fred will not be an active manager; his partner will run the restaurant. Will he get the loan? Explain your answer.

Going by Fred's loan history which has been good in the scenario described above, one may be tempted to say Fred will be granted the loan application. However, given the following reasons, Fred may have difficulty getting the loan :

Expenses on utilities, Rent and insurance = $1,100 per month = ($1100 * 12) =

$13,200 per annum

Amount left his $25,000 annual salary = ($25,000 - $13,200) = $11,800 for the year.

This amount would only likely get him survive through the year.

$2,400 in savings account isn't enough to convince the lender to grant him a loan on the tune of $10,000

Also, Fred's got a good track record, however, the proposed manager of the said restaurant won't be Fred but his friend whose managerial skill or prowess is unknown.

The $12,800 in Fred's retirement account isn't accessible at the moment.

Hence, getting a $10,000 loan with the constraints above may seem very difficult even with Fred's loan record.