Metropolitan Bank Case Study
I prospects appeared g the volume of Jones Elect tribal Distribution’s tort continuo De growth business over the foreseeable future. Rhea bank also noted the rapid increase in Jones El streetcar’s accounts payable and line of credit in the recent past. Jones Electrical main supplies RSI had terms of 30 days net and provided a 2% discount for payments made with in 10 days of invoice date.
These terms notwithstanding, the manufacturers did not object if payments lagged some Nat behind the due date During the past six months, Jones had taken very few purchase discount because of the shortage of funds arising from the additional investments in working capital ASCII *Ted with the company’s increased sales volume.
Balance sheets at December 31, 2004-2006, and March 31, 2007, are presented in Exhibit 2 Rhea tentative discussions between Rachel Monitors and Nelson Jones had been about a revolving, secured line of credit not to exceed $350,000.
The specific details of the loan had not been worked out, but Monitors had explained the agreement woo SLD involve the standard covenants applying to such a loan. She cited as illustrative provisions he requirement that restrictions on additional borrowing would be imposed, that additional investments in fixed as sets could be made only with prior approval of the bank, and that limitations woo SLD be placed on withdrawals of funds from the business by Jones.
She also indicated that while the line of credit would have a limit of $350,000, Joneses utilization of the line at any point in time would be limited to an amount equal to 75% of Accounts Receivable and 50% of Inventory. Intern SST would be set on a floating-rate basis at 1. 5% percentage points above the prime rate (the rate pa d by the banks most creditworthy customers).
Monitors indicated that the initial rate to be paid Mould be about 7. 5% under conditions in effect in early 2007.
Jones also understood that he wool be required to sever his relationship with Metropolitan Bank if he entered into a 10 an agreement with Southern Bank ; Trust. Erne Future to Jones Electrical Distribution As he contemplated his next meeting with Mont rose, Joneses thoughts were dominated by the Immediate need for more bank credit. However, he knew that the increasingly tense relationships with his suppliers and the seemingly unending need for more financing meant that he needed to be more deliberate about his future growth plans.
To get started, he grabbed a blank piece of paper from his office printer and sketched out the options before him. He started with the pace of sales growth followed by his taking the 2% discounts?or not?which led Into the financing implications of each alternative. See Exhibit 3 for the diagram of the alternate ivies as Jones saw them. Jones promised himself that he would not only close the new bank deal but he would then determine the right long
