Analyze the loan request from the viewpoint of a lender

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Problem - Bank Loan Considerations - Assume you started a new business last year with $50,000 of your own money, which was used to purchase equipment. Now you are seeking a $25,000 loan to finance the inventory needed to reach this year's sales target. You have agreed to pledge your venture's delivery truck and your personal automobile as support for the loan. Your sister has agreed to cosign the loan. During your initial year of operation, you paid your suppliers in a timely fashion.

Required -

A. Analyze the loan request from the viewpoint of a lender who uses the five Cs of credit analysis as an aid in deciding whether to make loans.

B. Assume that you are currently carrying an accounts receivable balance of $10,000. How might you use accounts receivables to obtain an additional bank loan?

C. Assume that at the end of next year you will have an accounts receivable balance of $15,000 and an inventories balance of $30,000. If a bank normally lends an amount equal to 80 percent of accounts receivable and 50 percent of inventories pledged as collateral, what would be the amount of a bank loan a year from now?

Reference no: EM132906676

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