Question

Maria is the sole proprietor of an antique store that is located in a rented warehouse. The business has a          $ 200,000 outstanding loan with the local bank but no other debt obligations. Last week, the loan, which has a monthly payment of $ 1,500, was not paid. There are no specific assets pledged as security for the loan. Due to a sudden and unexpected downturn in the economy, the store is just unable to generate sufficient funds to pay the over-due loan payment as well as the payments due over the next two months.

Maria is considering selling all of the lighting fixtures in her building which will raise enough funds to make three loan payments. The bank has suggested to Maria that she sell off all her inventory. And it appears that the bank has withdrawn at least one loan payment from Maria’s personal bank account.

1) Can you suggest a strategy to help Maria with the sale of the lighting fixtures?

2) What is the impact of her selling off all her inventory?

3) Has the bank acted improperly by withdrawing the missed loan payment from Maria’s personal account given that this loan was made to her business ?

Answer 1

From the above Scenario it can be marked that:

• $2,00,000 loan must be invested more for buying inventory and fixtures as the building is rented
• She has not paid one last Installment and no other securities are there

So, she is having only two options

1. To sell out fixtures
2. To sell out Inventory

1) If she sells out all her fixtures then it will make money for next three payments but what will she do after that.

she should rather concentrate on selling her inventory off as that can earn more amount than selling out all her fixtures. And if she sells out all her fixtures then her store won't be so attractive to get customers in for selling her Inventory.

So, she should rather sell more Inventory n sell that fixtures which are more expensive n less useful.

2) If she sells all her Inventory, then it questions it's store's going concern means It won't last long if she couldn't make good money out of it.

She should sell that after taking care or her finance cost. She need to cover it from her sales else her business will go in negative.

3) As regards the withdrawal of loan amt from Maria's personal loan, bank acted improperly in this case. Bank needs to contact her for non payment of her Business Installment and they can take action against company only. Bank can not withdraw the amount from her personal account.