Company Position StatementButler Lumber Company is looking for more liquidity due to the fast-paced lumber market and funding shortage. Their regular bank, Suburban National Bank, is unwilling to expand their current loan to more than $250,000 without securing the loan with real estate. Another loan was offered by a second bank, Northrup National Bank, for $465,000, with the understanding that the previous loan would be incorporated into the second. The interest on the new loan would be prime + 2%. Co-founder Mark Butler owes an important note to the other original partner, who Mark took over. He has a 12-year mortgage on his home and no other significant investments. Mark's personal references indicate that he works hard and follows his business very carefully. Mark's current outstanding debts are as follows: Note for $247,000 Outstanding debt from business partners $157,000 Accounts payable $343,000 Accrued expenses $51,000 Current portion of long-term debt $7,000 Long-term term debt $43,000 Total liabilities $ 848,000 net income is expected to be $ 56,000 based on projected sales of $3.6 million. Butler's business is based more on the repair industry than new construction, so it is somewhat insulated from fluctuations in the new construction market. Key Recommendations Northrup National Bank should extend the loan to Butler. The company will roll over much of its existing debt into the new loan, without extending significantly further than it currently is and at a more favorable rate. Butler has managed to keep its debt current and, based on projections, should have the means to begin repaying it. From the bank's point of view, the risk is minimal. 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 in late 1991. Butler Lumber Co. is expected to accept the short-term loan and, if necessary, start the $157,000 operation. credit in it. Nature of the Problem Butler's short-term lending options are completely exhausted, so the company has no cash flexibility. Inventory levels indicate that Mark is ramping up in anticipation of the massive influx of sales in the warmer months. Most of Butler's sales occur 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 expected sales growth.