Isaac, a graduate of the furniture design program at Sheridan College, had been working for a few years as a furniture maker at the Big Furniture Company.Isaac was tired of working for others so he decided to start his own furniture making business as a sole proprietor.

He looked around for a suitable building and found an old warehouse up for sale in Bolton, Ontario.Isaac used his inheritance from his grandfather to rent the premises and pay for the necessary renovations to the building.However he now needed to come up with $200,000 for the following:

A.Furniture Making Machinery ($75,000)

-Dovetail machine

-Case clamps

-Three boring machines

-Face frame machine

-Jointer machine

-Radio frequency gluers

B.Fine Furniture Finishing Tools ($15,000)

-Block plane

-Bevel-edge chisels

-Water stones

-Squares

-Card scraper

C.Ford F-150 Pick-up Truck ($28,000)

D.Electric 4 wheel sitdown forklift ($32,000)

E.Lumber materials and hardware ($50,000)

As a result, he put together a business plan and met with Sam Drucker of the Friendly Bank of Canada to discuss a loan of $200,000.

Sam explains to Isaac that $200,000 is a lot of money and the debt is going to have to be secured against various collateral.Isaac enthusiastically says to Sam that while he gets all that, he has already lined up about eight customers interested in buying his product, and has come up with two new hinge systems for drawers for desks and kitchen cupboards and a catchy sales slogan.

TASK:

In a group of four students, each student should individually review the material on securing debts and reflect on three things: (1) what types of current collateral Isaac has to offer to ensure the loan debt is repaid; (2) how the bank would secure that collateral so that if Isaac defaults, the bank may seize and sell the collateral to pay off the debt; and (3) what later collateral is Isaac likely to acquire that the bank can also use as security once he develops customers for his products.

Once you have completed that as an individual, then discuss the answers to the two questions as a group and arrive at a consensus.Then, write down your group's answers and be prepared to share them with the class.