Answer all four questions at the end of the case.

VIDEO CASE 12 Moonworks From Gutters to Home Remodeling Island home improvement market and was seeking a part- Not only is financing a startup business a challenge, but sometimes remaining fiscally fit for survival is itself a dif. ficult hurdle to overcome. The fi Moon Associates struck a deal to be the sole southern New England partner, and Renewal by Andersen of Rhode Island soon debuted. With this partnership, Moon Associates was positioned to serve its existing customer base with Andersen's stylish, energy ner. After months of negotiation, irst three years of starting a business can be the toughest, but how does a company that has been operating for several years continue to find urces of financing? Economic conditions, products, and customer bases can change, sometimes leaving a once-sus tainable company in jeopardy of not meeting the day-t day expenses of operation. efficient window Yet the partnership didn't provide Moon Associat with the necessary boost. In 2007, GutterHelmet sales dropped 50 percent, to S6 million. Despite efforts Managing cash flows invariably takes more than just g payables with receivables, covering payroll, and paying taxes and insurance. As business conditions change, so can the money coming into a company. Even after startup loans have been retired, a line of credit or an from a good funding provider is essential to keep a advertise on the Internet, new business leads were hard to generate. Renewal by Andersen of Rhode Island endured the normal financial hardships of starting up, and Moon Associates' bottom line went in the red after total com- pany revenues plummeted 30 percent. Moon Associates needed something more than a new product line or divi- business moving forward. Moonworks, a Rhode Island-based remodeling busi sion to return the company to profitability New England winters can be hard, and the winter of rise to financial success by selling a product called Gut- 2007/2008 was even tougher for Moon Associates. For the terHelmet. Backed by the financial resources of BankRI, first time, the company's management team had to figure president and CEO Jim Moon turned GutterHelmet into out how to turn around a negative bottom line at a time household name in New England by marketing it with when business in general was changing. Moon went back help from local celebrities. Between 1993 and 2005, Moon to the drawing board to look for top-level talent. Local Associates grew to $14 million in revenue by selling the celebrities weren't the answer, so he recruited industry product throughout New England, New York, and south veteran Paul Thibeault, formerly Home Depot's Home west Florida, while working out of a 10,000-square-foot Services northeast manager, to inject muscle into the com- building the company owns in Woonsocket, Rhode Island. pany's sales force. But building sales would take time, and ness founded as Moon Associates in 1993, enjoyed a modest the company needed new capital to move forward. Mo During that time, the company installed more gutters in ter companies combined. like garage organizing systems and hurricane shutters, but the New England states and New York than all other gut Associates called on an old friend, the company's long- term financial partner, BankRI. Banker Matt Weiner and As business boomed, Moon assembled a top-notch BankRI believed in Moon Associates' business plan and management team and started offering other products increased the company's credit line to keep Moon Associ- ates on track. The capital enabled Moon Associates' management erator. To set the stage for future growth, the company's team to play a hunch that Renewal by Andersen of Rhode management began implementing industry-leading busi- Island could make a dent in the Cape Cod, Massachusetts market. Further, the company diversified its product line The tide started to change in 2006. The market for gut- to include general exterior home replacement products like ter protection and remodeling showed signs of weakening roofing and siding, as well as insulation and hot water heat- in a slowing housing market, and the competition started ers. Moon Associates changed its name to Moonworks and putting a dent in GutterHelmet. There was no seasonal shifted its focus to being a leading regional home improve- uptick in fall orders, and Moon Associates began explor- ment company and began to emphasize repeat customer GutterHelmet remained the company's largest cash gen ness systems ing other means of generating operating cash, including business instead of new customer generation the sale of their Florida operation. About the same time, By the end of 2008, the company had emerged from the Andersen Company's full-service window replacement red and had a solid black bottom line. Revenues had grown division, Renewal by Andersen, had entered the Rhode 39 percent, and cash flows were positive. Moonworks was 668 Video Case 12 Moonworks named the "Best of the Best, Smaller Market," an award that goes to the best-performing Renewal by Andersen dealer in the country 2. On what three priorities might BankRI representa- tive Matt Weiner have based the decision to extend Moon Associates' line of credit or offer additional Moonworks continued to grow over the next two financing? What are the "five C's of credit" years, again receiving top recognition from Renewal by 3. Even as the remodeling market weakened and tak- Andersen, while expanding its window-remodeling ter ing on extra financing became risky, what are some ritory into Hartford and northern Connecticut. In 2010 the company posted revenues of S12.7 million, more than Jim Moon did to sustain the company's long-term twice that in 2007. A crowning achievement was the com- pany's receipt of the "Big 50 Award," Remodeling Maga- ine's annual award recognizing exceptional performance in the remodeling and replacement contracting industry things that Moon Associates' president and CEO 4. Could Moon Associates have obtained the needed capital to not only keep the company running but expand its Renewal by Andersen line through a mortgage loan? If so, how long could such a loan be financed? View the video and answer the questions that follow. Questions 1. Describe what a line of credit involves, and explain the legal obligation of a bank to provide capital with a line of credit