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

Statement of theaters positionbutler Lumber Company is looking for more(prenominal)(prenominal) cash due to a fast-paced lumber trade and a shortage of funding. Their regular bank, Suburban National Bank, is not willing to protract their exiting add to an amount greater than $250,000 without securing the add with real property. Another bestow is being offered by a second bank, Northrup National Bank, for $465,000, with the understanding that the prior 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 denounce to the other original partner, who Mark bought out. He has a mortgage on his 12-year-old house and no other significant investments. Marks own(prenominal) references indicate that he is hard-working and watches his business very closely.Marks new outstanding debts are as followsBank note for $247,000Outstanding debt from deal partners $157,000Accounts payable $343,000Accrued expenses $51,000Current portion of long- verge debt $7,000Long-term debt $43,000 congeries liabilities $848,000Net income is projected at $56,000 based on projected gross revenue of $3.6m. Butlers business relies more heavily on the inspire industry 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 company will roll much of its existing debt into the new loan, without extending itself importantly 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 banks perspective, in that respects little risk involved. With the industry expect 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 loan and if necessary roll the $157,000 trade credit into it. Nature of the difficultyButlers short-term loan options are completely maxed out, so the company has no cash flexibility. Inventory levels indicate Mark is ramping up in expectation of the massive influx of sales in the tepid months. More of Butlers sales are in the loosen up months, when repairs are easier to make in the Inland Northwest. The loan will arrive at Butler the ability to finance more inventory to meet the expected growth in sales.