Chapter 14

Ethical Dilemma (B)

Who Has the Moneythe Democrat or the Republican?

Sunflower Manufacturing recently applied for a $10 million loan at The Democrat Federal Bank (known simply as The Democrat). The purpose of the loan is to support its working capital needs during the next nine months. Sunflower has been a loyal customer of the bank for many years and has been extended whatever amount of credit it requested in the past.

Sheli Crocker, who is a new, young loan officer at The Democrat, reviewed Sunflowers loan application and decided to turn down the loan for the requested amount. In her report to Henry, her boss and the senior loan officer, Sheli indicated she thought that Sunflower would have trouble repaying a $10 million loan because its financial position has deteriorated in recent months. Sheli noted that the companys liquidity position is very poor and that analysts are very pessimistic about Sunflowers ability to improve its liquidity during the next two years. As a result, Sheli recommended that Sunflowers request for $10 million be denied. However, she indicated that she thought it would be more appropriate for the bank to lend a smaller amount, up to a maximum of $2 million.

Earlier today, Henry called Sheli into his office to discuss her report because he wants her to reconsider her recommendation. Henry told Sheli that he thought the bank should extend the $10 million loan to Sunflower because the company has been a model customer in the past, and the bank should not abandon a loyal customer just because it might have some short-term financial difficulties. Sheli explained that sunflowers financial numbers indicate that the firm can handle only a $2 million loan. In addition, she said that the cash budget that was provided with the loan application was suspicious because the numbers dont seem to match Sunflowers other financial statements and recent activity in the companys bank accounts.

. What do you choose do to with the data? How do you act in certain situations?