Butler Lumber Finance Case :: Business, Case Study, solution

Statement of firms position pantryman Lumber Company is looking for more gold due to a fast-paced lumber market and a shortfall of funding. Their regular bank, Suburban National Bank, is not willing to expand their exiting impartword to an amount greater than $250,000 without securing the give with real property. Anformer(a) loan is macrocosm 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 pantryman, owes a major note to the other original partner, who Mark bought out. He has a mortgage on his 12-year-old rear and no other significant investments. Marks personal references foretell that he is hard-working and watches his business very closely.Marks current nifty debts be as followsBank note for $247,000Outstanding debt from trade partners $157,000Accounts payable $343,000Accrued expenses $51,000Current porti on of long-term debt $7,000Long-term debt $43,000Total liabilities $848,000 mesh topology income is projected at $56,000 based on projected sales of $3.6m. butlers business relies more heavily on the repair industriousness than on new construction, so it is somewhat protected against market fluctuations on new construction. Major recommendationsNorthrup National Bank should extend the loan to Butler. The high society will roll a great deal of its existing debt into the new loan, without extending itself significantly barely than it currently is, and at a more favorable rate. Butler has been happy in keeping current on its debts, and based on projections should deal the means to start paying these debts down. From the banks perspective, theres little risk involved. With the industry expected to grow so much in the next year, Butler will be in a strong position, and potentially interested in borrowing more at the end of 1991.Butler Lumber Co. should take the short term loa n and if necessary roll the $157,000 trade credit into it. Nature of the problemButlers short-term loan options are completely maxed out, so the party has no cash flexibility. Inventory levels indicate Mark is ramping up in expectation of the massive influx of sales in the warmer months. more of Butlers sales are in the warm months, when repairs are easier to make in the Inland Northwest. The loan will give Butler the ability to finance more inventory to meet the expected harvest-festival in sales.