Credit analysis and lending management | BFF3841
QUESTION 1 of 2 Required: Critically evaluate the loan request outlined below and recommend whether you would lend the requested amount. Your answer must indicate the relevant facts of the case; the appropriate concerns with this loan proposal and provide the relevant recommendations.
The Bank of Monash has just received a loan proposal from an established client seeking to buy a local mixed grocery store / convenience food store. John and Joan Jones have been customers with the Bank of Monash for the past seven years. Until two years ago they were the hard-working owners of the local dry cleaners and laundromat. Their business was well run and profitable, mainly servicing the needs of the local university staff and student population. As a result of the skills learned while cleaning graduation gowns, their business had also built up a profitable side line in cleaning wedding gowns and similar formal clothes. After working long hours for the previous five years John and Joan had sold their dry cleaners and took a long-overdue extended holiday. After their long holiday John and Joan have worked as managers in several other cleaning businesses specialising in formal wear. Now feeling refreshed and ready to meet the challenges of running a small business again, John and Joan seeking to borrow from the Bank of Monash to buy another small business serving the needs of the Monash community. They are seeking to borrow $220,000 as a five-year term loan as well as an overdraft (line of credit) of $25,000 The business the John and Joan are seeking to buy is Mario’s Monash Munchies (MMM). MMM has been part of the Monash community since 1958. The business has changed hands a number of times since it was established, the well-recognised name has stayed with the business. MMM is a small grocery and convenience store that provides a range of products to Monash community as well as a limited range of fast food items such as hot pies, coffee and soups. While the prices charged by MMM are a bit higher that the supermarket prices, MMM offers the advantage of being on campus and open for longer hours during semester (MMM has a long-term lease arrangement with the university student union). This has made MMM something of a Monash University institution, particularly with students dropping in after evening class to have a cup of soup to eat when catching the bus or train home. The most recent financial statements and balance sheet from MMM for the last three years together with a forecast for 2024 are provided below.