Statement of firm’s position
Butler Lumber Company is looking for more cash due to a fast-paced lumber market and a shortage of funding. Their regular bank, Suburban National Bank, is not willing to expand their exiting loan to an amount greater than $250,000 without securing the loan with real property. Another loan is being offered by a second bank, Northrup National Bank, for $465,000, with the understanding that the previous loan would be rolled into the second. The interest on the new loan would be prime + 2%.
The co-founder, Mark Butler, owes a major note to the other original partner, who Mark bought out. He has a mortgage on his 12-year-old house and no other significant investments. Mark’s personal references indicate that he is hard-working and watches his business very closely.
Mark’s current outstanding debts are as follows:
Bank note for $247,000
Outstanding debt from trade partners $157,000
Accounts payable $343,000
Accrued expenses $51,000
Current portion of long-term debt $7,000
Long-term debt $43,000
Total liabilities $848,000
Net income is projected at $56,000 based on projected sales of $3.6m. Butler’s business relies more heavily on the repair industry than on new construction, so it is somewhat protected against market fluctuations on new construction.
Major recommendations
Northrup National Bank should extend the loan to Butler. The company will roll much of its existing debt into the new loan, without extending itself significantly further than it currently is, and at a more favorable rate. Butler has been successful in keeping current on its debts, and based on projections should have the means to start paying these debts down. From the bank’s perspective ...