Corporate Position Statement Butler Lumber Company is seeking more liquidity due to a rapidly changing lumber market and a lack of financing. Their regular bank, Suburban National Bank, is unwilling to extend their existing loan to more than $250,000 without securing the loan with real estate. Another loan is offered by a second bank, Northrup National Bank, for $465,000, with the understanding that the previous loan would be integrated into the second. The interest on the new loan would be +2%. Co-founder Mark Butler owes a significant debt to the other original partner, whom 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 works hard and monitors his business very closely. Mark's current debts are as follows: Bank note of $247,000 Outstanding debt to business partners $157,000 Accounts payable $343,000 Expenses payable $51,000 Current portion of long-term debt $7,000 Long-debt forward $43,000 Total liabilities $848,000 Net income is projected at $56,000 based on projected sales of $3.6 million. Butler's business relies more on the repair sector than new construction, so it is somewhat protected from market fluctuations when it comes to new construction. Key Recommendations Northrup National Bank should make the loan to Butler. The company will consolidate much of its existing debt into the new loan, without extending it much further than it currently is, and at a more favorable rate. Butler has managed to keep its debts current and, based on projections, should have the means to begin repaying those debts. From the bank's point of view, there is little risk. As the industry expects strong growth over the next year, Butler will be in a strong position and will potentially be interested in borrowing more in late 1991. Butler Lumber Co. is expected to take out the short-term loan and, if necessary, restart the transaction for $157,000. credit. Nature of the Problem Butler's short-term loan options are completely maxed out, so the company has no cash flow flexibility. Inventory levels indicate Mark is increasing in anticipation of the massive influx of sales during the warmer months. Most of Butler's sales occur during 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..