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 And it appears that the bank has withdrawn at least one loan payment from Maria’s personal bank account. 1) Can you suggest a strategy to help Maria with the sale of the lighting fixtures? 2) What is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

Facts & Scenario

Total Outstanding Loan Amount : $ 200,000

Monthly EMI : $1500

Selling of the Lighting Fixtures will raise funds for three loan payments

Bank has suggested to sell of inventory

Bank has withdrawn one loan payment from the personal bank account.

Solution

1. Strategy to help Maria with the sale of lighting fixtures

Option a) To approach friend circle , business circle or social network wherein immediate sale possible at reasonable rate. b) To approach retail outlets wherein the product can be display .She need to share the margin with them. c) To tie up with e-marketing companies who can registered the product on their websites and target online selling.

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

Direct effect on cash flow. Increase in gross margin. Exposure to under-stocking scenario.

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 ?

The loan given by bank was on terms of unsecured as it is stated that there were no specific assets pledged as security. It is complete breach of contract from bank part in withdrawing funds from personal account unless contract agreement specifically states it.