Solutions or Recommendations
Jones should accept the loan from Southern Bank and Trust, since he will be receiving more funding. The funding from Southern Bank and Trust was more that what the company would have received from Metropolitan Bank. Although, the requirements of Southern Bank and Trust Bank seem to be rigid, the more monies that he receives can however be used in the firm’s expansion as well as paying off some of the company’s liabilities. As a result, Jones will be allowed more flexibility in the operations of the business. He will then be able to increase his assets in the form of inventory and capital, which in turn will result in his business being in a better position to finance its operations. In addition, Jones Electrical will be able to benefit from the trade discounts which are offered by his suppliers because this arrangement would allow him to pay his creditors.
With respect to the early payment discount of only 2%, it is advisable that the Company, continue to credit its supplies and make alternative arrangements with respect of repayment to its suppliers. The company needs cash and the discount of the 2% does not put the company in a better financial position. It is always important to inject equity so that your company will be able to increase its assets, which will eventually lead to an increase in sales and revenue.
Another issue is that with respect to the proposed growth of the company, Jones had predicted forecasting in sales to increase significantly therefore the urgent need for a very large cash flow into the company would help significantly.
Evaluate solutions
Pros
Cons
Should Jones Electrical decide to accept the loan from Southern Bank and Trust, it will receive funds to be able manage and expand its operations and pay off his debt.
A loan is a liability and this will mean the firm will have another expense to pay at the