2. Obviously, to verify whether the loan is feasible or not, you need to project the financial statements based on the business strategy you discussed with the company. So, mention the assumptions you are making in projecting the financial statements. Particularly, you need to make convincing argument as to why you think the projected sales are achievable. Before doing this, you need to view the LinkedIn learning video of sales forecasting and financial statement projections. 3. As the loan office of Downtown Community Bank how would you recommend structuring the real estate and equipment loan? 4. What other questions do you have regarding these loan requests? What other information would you request from Mr. Smith? 5. Discuss the strengths and weaknesses associated with these loan requests. 6. Create a borrowing base for the working capital line of credit using accounts receivable. 7. What is your recommendation as the loan office of Downtown Community Bank? 8. Discuss what loan covenants Downtown Community Bank would need to enforce if the loan request for the working capital line of credit was approved. Introduction OMEGA Manufacturing, Inc. is a pump manufacturing company located in Houston, Texas. The pumps that OMEGA Manufacturing, Inc. makes are for applications related to oil field servicing, Prior to starting up OMEGA Manufacturing, Inc. in 2016, Mr. Smith was an engineer for Ford Motor Company, While at Ford Motor Company, Mr. Smith discovered that many pumps used on automobiles were breaking down at a rather fast pace and costing Ford Motor Company millions of dollars a year in replacement costs. Over a course of ten years, Mr. Smith was able to develop a way to repair the faulty pumps and make them stronger and save oil field servicing companies' money by refurbishing the pumps, In 2015, Mr. Smith approached Ford Motor Company with his design and was encouraged to step out on his own a begin OMEGA Manufacturing, Inc. Ford Motor Company also agreed to purchase the refurbished pumps for automobiles owned by the company. In June of 2015, Mr. Smith used cash on hand and retirement accounts totaling $530,000 to get a loan from Dayton Community Bank to purchase a 14,000 square foot warehouse and machining equipment. The real estate loan is a three-year mini-perm loan at an interest rate of 5.75%. The equipment loan is interest only and will begin amortizing in January 2020. The equipment loan has an interest rate of 7.00%. After making a 20% down payment on both the real estate and equipment, Mr. Smith had $125,000 for working capital. OMEGA Manufacturing, Inc.'s customer base consists of five companies. Of these five companies three of them make up 86.11% of the all the revenue generated by OMEGA Manufacturing, Inc. Mr. Smith realizes that if one of these three companies decides to stop purchasing the refurbished pumps from OMEGA Manufacturing, Inc. that it could potentially put the company out of business. Request 2: Mr. Smith is also looking to move his existing real estate loan and equipment loan out Easy Street Bank. Mr. Smith believes the company is in a position to pay off the equipment on a straight five-year payout for the real estate loan, Mr. Smith would like to refinance the loan and try to cash out some of the equity on the property, Mr. Smith is amenable to another term loan, but would like to structure the loan on a twenty-year straight payout. Mr. Smith's preference is to have a fixed interest rate so that he knows what his payments will be each month. Banking Relationship OMEGA Manufacturing, Inc. has a current banking relationship is with John Humphrey at Dayton Community Bank. However, Mr. Smith has just been informed that John is retiring at the end of the year. Mr. Smith is concerned that the new loan officer that will be taking over John's loan portfolio will not understand his business needs. Therefore, Mr. Smith would like to establish a relationship with Downtown Community Bank before the end of the year. Mr. Smith is willing to open an operating account at Hometown Bank if the loan requests are approved. Financial Information Financial statements for OMEGA Manufacturing, Inc. for 2017, 2018, and interim statements for September 2019 are presented in Exhibits 1 through 5. All the financial information needed to make a sound credit decision is included in these exhibits. Accounts receivable aging report is also included. Management Michael Smith acts as President and CEO of OMEGA Manufacturing, Inc. When Mr. Smith started the company, he asked his wife Jane to step down as bookkeeper for the local church and work full-time at OMEGA Manufacturing, Inc. as controller. Jane Smith has two employees within her department for administrative purposes. Currently, OMEGA Manufacturing, Inc. has one salesperson, Jack Johnson, Jack has done a tremendous job growing the business over the last two years and has generated sales more than $2,000,000. OMEGA Manufacturing, Inc. also has three machinists who are responsible for refurbishing faulty or broken-down pumps with the technology Mr. Smith developed. Loan Request Request 1: Mr. Smith has approached Downtown Community Bank for a $500,000 working capital loan. Mr. Smith has stated that his cash flow is rather tight due to some of his larger customers paying in 90 days as opposed to 30 days. The working capital line of credit would allow him to use the loan funds to pay vendors while accounts receivable is being collected. The working line of credit would also be used to take advantage of trade discounts from vendors. Mr. Smith would prefer to have an unsecure loan with the bank but understands that is not a likely scenario in today's economy. 2. Obviously, to verify whether the loan is feasible or not, you need to project the financial statements based on the business strategy you discussed with the company. So, mention the assumptions you are making in projecting the financial statements. Particularly, you need to make convincing argument as to why you think the projected sales are achievable. Before doing this, you need to view the LinkedIn learning video of sales forecasting and financial statement projections. 3. As the loan office of Downtown Community Bank how would you recommend structuring the real estate and equipment loan? 4. What other questions do you have regarding these loan requests? What other information would you request from Mr. Smith? 5. Discuss the strengths and weaknesses associated with these loan requests. 6. Create a borrowing base for the working capital line of credit using accounts receivable. 7. What is your recommendation as the loan office of Downtown Community Bank? 8. Discuss what loan covenants Downtown Community Bank would need to enforce if the loan request for the working capital line of credit was approved. Introduction OMEGA Manufacturing, Inc. is a pump manufacturing company located in Houston, Texas. The pumps that OMEGA Manufacturing, Inc. makes are for applications related to oil field servicing, Prior to starting up OMEGA Manufacturing, Inc. in 2016, Mr. Smith was an engineer for Ford Motor Company, While at Ford Motor Company, Mr. Smith discovered that many pumps used on automobiles were breaking down at a rather fast pace and costing Ford Motor Company millions of dollars a year in replacement costs. Over a course of ten years, Mr. Smith was able to develop a way to repair the faulty pumps and make them stronger and save oil field servicing companies' money by refurbishing the pumps, In 2015, Mr. Smith approached Ford Motor Company with his design and was encouraged to step out on his own a begin OMEGA Manufacturing, Inc. Ford Motor Company also agreed to purchase the refurbished pumps for automobiles owned by the company. In June of 2015, Mr. Smith used cash on hand and retirement accounts totaling $530,000 to get a loan from Dayton Community Bank to purchase a 14,000 square foot warehouse and machining equipment. The real estate loan is a three-year mini-perm loan at an interest rate of 5.75%. The equipment loan is interest only and will begin amortizing in January 2020. The equipment loan has an interest rate of 7.00%. After making a 20% down payment on both the real estate and equipment, Mr. Smith had $125,000 for working capital. OMEGA Manufacturing, Inc.'s customer base consists of five companies. Of these five companies three of them make up 86.11% of the all the revenue generated by OMEGA Manufacturing, Inc. Mr. Smith realizes that if one of these three companies decides to stop purchasing the refurbished pumps from OMEGA Manufacturing, Inc. that it could potentially put the company out of business. Request 2: Mr. Smith is also looking to move his existing real estate loan and equipment loan out Easy Street Bank. Mr. Smith believes the company is in a position to pay off the equipment on a straight five-year payout for the real estate loan, Mr. Smith would like to refinance the loan and try to cash out some of the equity on the property, Mr. Smith is amenable to another term loan, but would like to structure the loan on a twenty-year straight payout. Mr. Smith's preference is to have a fixed interest rate so that he knows what his payments will be each month. Banking Relationship OMEGA Manufacturing, Inc. has a current banking relationship is with John Humphrey at Dayton Community Bank. However, Mr. Smith has just been informed that John is retiring at the end of the year. Mr. Smith is concerned that the new loan officer that will be taking over John's loan portfolio will not understand his business needs. Therefore, Mr. Smith would like to establish a relationship with Downtown Community Bank before the end of the year. Mr. Smith is willing to open an operating account at Hometown Bank if the loan requests are approved. Financial Information Financial statements for OMEGA Manufacturing, Inc. for 2017, 2018, and interim statements for September 2019 are presented in Exhibits 1 through 5. All the financial information needed to make a sound credit decision is included in these exhibits. Accounts receivable aging report is also included. Management Michael Smith acts as President and CEO of OMEGA Manufacturing, Inc. When Mr. Smith started the company, he asked his wife Jane to step down as bookkeeper for the local church and work full-time at OMEGA Manufacturing, Inc. as controller. Jane Smith has two employees within her department for administrative purposes. Currently, OMEGA Manufacturing, Inc. has one salesperson, Jack Johnson, Jack has done a tremendous job growing the business over the last two years and has generated sales more than $2,000,000. OMEGA Manufacturing, Inc. also has three machinists who are responsible for refurbishing faulty or broken-down pumps with the technology Mr. Smith developed. Loan Request Request 1: Mr. Smith has approached Downtown Community Bank for a $500,000 working capital loan. Mr. Smith has stated that his cash flow is rather tight due to some of his larger customers paying in 90 days as opposed to 30 days. The working capital line of credit would allow him to use the loan funds to pay vendors while accounts receivable is being collected. The working line of credit would also be used to take advantage of trade discounts from vendors. Mr. Smith would prefer to have an unsecure loan with the bank but understands that is not a likely scenario in today's economy