Jones Electrical Distribution
Current Position
Jones Electrical Distribution (hereinafter Jones Electric) is currently facing an issue with cash flows, which will ultimately affect the overall profitability and growth potential for the company. The owner, Nelson Jones, is diligent in paying his suppliers within ten days in order to capitalize on a two percent early pay discount, but in doing so, has over-extended cash flows. Though the company has been profitable and growing over the past three years, its current lender, Metropolitan Bank, will not increase a line of credit (LOC) beyond $250,000, a LOC upon which Jones has recently fully drawn.
In order to ease the tensions of depleting cash reserves, Jones is seeking a higher LOC from another lender, Southern Bank & Trust (SB&T). A higher LOC will not only cover overhead expenses and take advantage of early pay discounts, but could also be invested in the continued growth of sales, as well as, potentially opening new locations. After weighing his options, Jones is convinced that he has to take on more debt in order to keep the business moving forward.
Thus far, Jones is only contemplating one financing option, a higher LOC from SB&T. The terms of LOC are not favorable when weighed against Jones’s objective to grow the business. SB&T will limit the drawable amount, control investments in fixed assets, and control Jones’s withdrawal of funds from the business. As such, Jones needs to reconsider SB&T’s offer and consider other financing options or reduce the need to borrow by changing operating procedures.
Jones is seeking a $350,000 LOC from SB&T, which is $100,000 more than the current LOC. Therefore, we assume that the difference of $100,000 is the target dollar amount needed for Jones Electrical. Coupled with alternative financing options, business operations will have to be adjusted if Jones Electrical is going to stay in business.
Nature of the Issue
The issue facing Jones Electrical is cash flow. More specifically, a slipping
Jones Electrical Distribution (hereinafter Jones Electric) is currently facing an issue with cash flows, which will ultimately affect the overall profitability and growth potential for the company. The owner, Nelson Jones, is diligent in paying his suppliers within ten days in order to capitalize on a two percent early pay discount, but in doing so, has over-extended cash flows. Though the company has been profitable and growing over the past three years, its current lender, Metropolitan Bank, will not increase a line of credit (LOC) beyond $250,000, a LOC upon which Jones has recently fully drawn.
In order to ease the tensions of depleting cash reserves, Jones is seeking a higher LOC from another lender, Southern Bank & Trust (SB&T). A higher LOC will not only cover overhead expenses and take advantage of early pay discounts, but could also be invested in the continued growth of sales, as well as, potentially opening new locations. After weighing his options, Jones is convinced that he has to take on more debt in order to keep the business moving forward.
Thus far, Jones is only contemplating one financing option, a higher LOC from SB&T. The terms of LOC are not favorable when weighed against Jones’s objective to grow the business. SB&T will limit the drawable amount, control investments in fixed assets, and control Jones’s withdrawal of funds from the business. As such, Jones needs to reconsider SB&T’s offer and consider other financing options or reduce the need to borrow by changing operating procedures.
Jones is seeking a $350,000 LOC from SB&T, which is $100,000 more than the current LOC. Therefore, we assume that the difference of $100,000 is the target dollar amount needed for Jones Electrical. Coupled with alternative financing options, business operations will have to be adjusted if Jones Electrical is going to stay in business.
Nature of the Issue
The issue facing Jones Electrical is cash flow. More specifically, a slipping