Wilson Lumber Co Loan Application Memorandum

...

As Mr. Wilson’s financial advisor, I urge him to go ahead with the loan because his existing loan is not sufficient. I request that he begin to reduce the % of his short term debt holdings to long term debt thereby help to reduce his interest payments. Mr. Wilson also needs to start taking advantage of the 2% trade discounts and make his payments within the allotted 10 days which would improve his cash flow.

Mr. Wilson does need to be careful and aware that his profit margins are already low and declining from 1.8% in 1982 to to 1.6% in 1984 and as his debt grows so will the interest rates. Ideally, Mr. Wilson can find a bank or other source that can offer him a better interest rate.

As his banker, yes i would be willing to lend to Mr Wilson because he is creditworthy with lots of great references and his clean record of on time loan payments. His business has also continued to see increases in sales and gross profit which are all positive indicators. Areas that i find concerning are the large stock of inventory that’s causing the shortage in cash and the initial high usage of the new credit line that will happen mainly towards pay off the debt to Suburban National Bank. Hence, i would attach the following conditions to the loan where Mr Wilson must reduce his inventory level and improve his inventory turnover, maintain agreed upon minimum working capital requirements, and require that any future fixed asset investment be approved by the bank.