Lending Situation #3 From the document, The Lucas Luscious Love-It Licorice Company (LLLLC) mainly focuses on producing seasonal holiday licorice candies and novelties. Now, we received the company owner Mr. Duda’s loan application of $8,500,000 to relocate the company from an economy decline community. However, Mr. Duda want to transfer all his current equipment which worth $12,200,000 alone with old-fashion production process to his new plant. The new facility will cost 18 months to construct, and Mr. Duda plan to continue producing candies while the new plant is under the construction. As one of the lending officer works in the bank, it is my duty to carefully evaluate this loan application. Because Mr. Duda’s company produce highly seasonal…show more content… Mr. Duda plan to transfer his current equipment to the new plant instead of purchasing new equipment, and market value of existing equipment worth $12,200,000. According to our bank regulation, we generally calculate 85% of the company’s fixed assets as the collateral of the loan. All of those existing equipment can be provided to our bank as collateral of the loan, and 85% of those equipment equals to $10,370,000, and it is enough to cover the amount of the loan. In the long-term, due to the seasonal characteristic of the company’s business, there is relatively high risk of sales decrease within the 15-year loan period; moreover, with fully depreciation of current equipment in 15 years, it may not cover the amount of the loan. If the loan approved, our bank charge the company $5.60 monthly per $1000 bases of the loan; so the company needs to pay $47,600 per month, and $571,200 per year, which only account for less than 15% of company’s net profits. Based on this, the company still have enough cash to keep the liquidity for its
