Butler Lumber Case Writeup
November 12, 2014.
Butler Lumber, a company founded by Mark Butler and his brother-in-law, Henry Stark owns land with access to railroad siding, and two other large storage buildings. Butler bought out Stark’s interest for $105,000 and incorporated the business. However, Butler needs more cash to keep up with the growing business, and their loan partner, Suburban National Bank is not willing to expand the credit line beyond $250,000 without a real property as a collateral. Since Butler didn’t want to give up the real property as collateral, he went elsewhere looking to secure a loan. Northrup National Bank is willing to offer up to $465,000 as long as the previous loan is grandfathered in, and their interest rate offer would be whatever the prime rate is plus 2%.
Even though his Balance Sheet looks great enough to suggest that he doesn’t need to borrow any more funds because the business has been profitable so far, Butler needs to borrow more funds in order to the business to the next level. It does say in the case that he doesn’t have sales representatives, so the additional funds can help him hire experienced sales person, and perhaps marketing people. More cash will be available in hand if he does get the loan, which he can use to boost inventory, and he will be able to lower his debt with a lower interest rate. I do agree with Butler’s estimate of the company loan requirement because his company is growing at a nearly alarming rate without the help of sales representatives. The growth will continue, and long as he can secure funds to keep up with it.
As Butlers Banker, I would advise him to seek the loan for an expansion as I stated earlier, the business is growing at an alarming rate, and that does require additional funding to keep up with because