Posted at 11.14.2018
Jones Electrical Distribution is an Electric company which includes expected that sales for the business will increase. However, through the years the company has experienced some challenges in its cashflow and made the decision that to keep the company in operation, it was evident that additional financing would be needed by means of financing. However, the loan limit for borrowing could not have exceeded $250, 000. 00. This amount was the maximum limit their local bank, Metropolitan would offer to any business. It must be pointed out that from the inception of Jones Electrical, Metropolitan Standard bank was the only financial service provider used by the business. In light of the foregoing, Jones had to get alternative financial assistance from another loan provider - Southern Standard bank and Trust. The credit line offered Jones Electrical a loan would be in the amount of $350, 000. 00, $100, 000. 00 more than what Metropolitan would have offered. Jones Electrical needed to determine which loan will be more beneficial, less high-risk and the least expensive for the business. They had a need to consider the proposition of acquiring the loan from Southern Bank or investment company Trust as opposed to remaining with Metropolitan Loan provider. Another issue arising from the truth is how Jones Electrical does its operations. He had over 100 suppliers that he acknowledged inventory, and he paid his accounts within the 10-day period to be able to reap the benefits of a 2% trade discount. The industry being large, fragmented and highly competitive, Jones Electrical acquired to decide whether they had a need to restructure their company's operation and develop same and also what financial decision that had to be designed for the continued operations of the Company. Jones Electrical would have much limitations regarding borrowing from Southern Loan provider and Trust such as; additional investments in fixed possessions could only be produced with prior approval of the lender, use of the line of credit could have a limit of $350, 000 of Accounts Receivable and 50% of Inventory and also, there will be restrictions on withdrawals of cash from the business enterprise by Jones. Should Jones agree to the loan from Southern Loan provider and Trust, his romantic relationship with Metropolitan Loan provider will have to be won't. (Piper and DeVolder, n. d). A number of factors would be talked about later on in cases like this which include the financial projections of Jones Electrical. In addition, Jones' financial assertions will be examined and we'll also go through the sustainability growth for this small company. The cash move of Jones Electrical will also be addressed in cases like this.
Jones Electrical needs to decide if it will agree to the offer of the loan from Southern Standard bank and Trust or from the Metropolitan Standard bank. The company needs to maintain steadily its sales, needs to expand, satisfy its liabilities but would need funding to carry out so.
Jones bought Dave Verdent, his former business spouse out for $250, 000. 00. His repayment plan was a $2000. 00 monthly with 8% interest per annum. The interest rate he's paying is relatively high and this means it will take Jones over a decade to settle this loan with an interest payment more than $200, 000. 00 in interest only. Therefore Jones will have to pay approximately $458, 400. 42 in interest and primary. This occurred because of a fallout Jones got with his spouse Dave Verdent over the aggressive growth of the business enterprise, which has put the business in credit card debt because Jones has to repay Verdent completely for buying out the company.
From the financial information provided in the total amount Sheet of Jones Electrical Circulation it implies that there was an increase in accounts receivables, inventory, property and equipment. This increase would allow an increase also in liabilities and equity to have the ability to finance the aforementioned assets. Alternatively, the balance sheet also shows in increase in accounts payable, credit line payable and accrued expenses. The above rises would therefore warrant financial the help of the Bank for the expansion of the business.
Another issue is the fact that Jones Electrical needed to resort to approaching the bank to receive financing for his company in order that his business would expand profitably, to build up with respect to opening other locations and survive on a highly competitive market.
Jones needed to decide whether he should get a loan from Metropolitan Loan company or from Southern Loan provider and Trust. If Jones decide to choose Southern Bank and Trust, you will see implications which were mentioned before (additional purchases in fixed property could only be made with prior endorsement of the lender, use of the credit line would have a limit of $350, 000 of Accounts Receivable and 50% of Inventory and also, you will see constraints on withdrawals of cash from the business by Jones. Should Jones agree to the loan from Southern Loan provider and Trust, his relationship with Metropolitan Loan provider will no longer be. He had a need to consider his options between the two banking companies.
Competition in the market: Jones Electrical was confronted with a whole lot of competition from countrywide distributors, home centers and other small supply house. The industry was a very large and fragmented one, and regardless of the competition, Jones Electrical could increase its sales; however, Jones was still ready where he needed to inject some money in to the business.
Jones should recognize the loan from Southern Bank or investment company and Trust, since he'll be receiving more money. The money from Southern Bank and Trust was more that what the company could have received from Metropolitan Loan provider. Although, certain requirements of Southern Loan provider and Trust Standard bank appear to be rigid, the greater monies that he gets can however be used in the firm's development as well as paying off some of the business's liabilities. As a result, Jones will be allowed more overall flexibility in the functions of the business enterprise. He'll then be able to increase his belongings by means of inventory and capital, which will cause his business being in an improved position to fund its operations. Furthermore, Jones Electrical can take advantage of the trade discounts which are proposed by his suppliers because this design allows him to pay his lenders.
With respect to the early repayment discount of only 2%, it is advisable that the Company, continue steadily to credit its products and make alternate arrangements with value of repayment to its suppliers. The company needs cash and the discount of the 2% will not put the company in an improved financial position. It is always important to inject equity which means that your company will be able to increase its property, that may eventually lead to an increase in sales and revenue.
Another issue is the fact with regards to the proposed progress of the business, Jones had predicted forecasting in sales to increase significantly which means urgent dependence on a very large cash flow into the company would help significantly.
Should Jones Electrical decide to recognize the loan from Southern Lender and Trust, it will receive cash to have the ability manage and extend its procedures and pay off his personal debt.
A loan is a responsibility and this will mean the company will have another charge to pay by the end of each month.
Benefits from trade savings made available from his suppliers. He may use this chance to get discounts from his suppliers.
Trade savings can have a negative impact for the reason that if Jones does not stay within enough time frame in spending money on his goods.
With the upsurge in bank borrowing, this may contribute to lots of aspects. One main aspect is the increase in sales, which will bring about increase earnings.
Increase in bank or investment company borrowing can result in a decrease in cashflow. As stated before, Southern Standard bank and Trust has limits in borrowing money from them.
With respect to the many financial data offered in this case, Jones Electrical forecasts forecasted that its sales would increase with favorable prospects and at the same time the company was in dire need of a significant cash inflow. It is however advisable that Jones Electrical allows the offer made by Southern Bank and Trust regardless of the specific restrictions that might be placed on the Company. This offer would give long term financing of the company and as a result the limitations regarding borrowing would eventually be removed, thus allowing the Company to utilize the line of credit specifically if it foresees forecast would be favorable.
The credit line offered by Southern Loan provider and Trust would be more than what Metropolitan would ever offer. Eventually, this budding financial romantic relationship between Jones Electrical and Southern Lender and Trust would allow Jones Electrical to even borrow much more than what they might have been offered in the beginning. Jones now can be more versatile with its business decisions with respect to expansion.