Question
In February, a start-up company approaches your bank for a $100,000 loan. It has been in business for less than two years. In your interview
In February, a start-up company approaches your bank for a $100,000 loan. It has been in business for less than two years. In your interview with the company's founder, the founder expresses that they are a rapidly growing company but nonetheless need a loan because the startup is having trouble fulfilling new orders due to the fact that it cannot generate enough cash flow from its day-to-day operations. In your analysis, you confirm that the company's revenue is rapidly growing, however, you also notice that revenue growth is supported by only a few customers who tend to be larger corporations. You do further anlaysis on the company's A/R and notice that its costumers pay consistently in a timely manner. Your anlaysis of the company's financial statements also shows that the company is slightly profitable this year but had a substantial loss in its first year. An inspection of the balance sheet shows that as of January 1st, the company has $5,000 of cash on hand, along with $150,000 of accounts receivable and $150,000 of inventory. It also has an equity to debt ratio of 75%. Based on this information and the fact that the company has a steller credit report you decide to give this company a loan. What type of loan or combination of loans will you most likely give this company? Explain Why?
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