To: Loan Committee, Northrup National Bank
Date: September 17, 2014
Re: Clarkson Lumber Company Loan Application
Overview
 Borrower: Keith Clarkson, sole owner and president of the Clarkson Lumber Company
 Purpose: To support rapid growth in business during recent years and anticipated further substantial increase in sales, allowing Mr. Clarkson to fully utilize trade discounts to improve profitability.
 Request / Amount: Not to exceed $750,000
 Rate: Set on a floating rate basis at two percent above the prime rate; initially approximately 11.0%
 Term: Revolving, secured, 90-day note
Estimated Loan Requirements
The loan amount required by Clarkson Lumber to finance the expected expansion in sales to $5.5 million in 1996 and to take all trade discounts can be calculated using the pro forma income statement and balance sheet (see pro forma). By balancing the values of bank notes with the total assets and liabilities, we have concluded that Mr. Clarkson’s estimate is under-stated.
 Expansion Rate Risk: If Clarkson Lumber continues to expand at such a rapid rate that cannot be financed proportionally from retained earnings, the company will be left in a very vulnerable high risk position. The company needs larger amounts of bank financing for longer terms than Mr. Clarkston realizes.
 Actual Loan Amount Required: $XXX,000
Loan Request Decision
Based on Clarkson Lumber's past financial performance, it’s increasing debt and decreasing financial health, and it’s extremely low current ratio, as well as Mr. Clarkson’s lack of diversity in investments, it is unlikely that the $750,000 loan will be repaid according to the terms discussed between Mr. Dodge and Mr. Clarkson. However, after adding several restrictive covenants, we would approve the loan request in hopes of long-term profitability.
 Long-Term Profitability: Based on the information