Question

You work as a wholesale person for a plumbing company. One of your customers, a contractor has an open line of credit with your company for $10,000 worth of products He is currently at his limit; however, he is not overdue. He has just received word that he has been awarded a $40,000 plumbing contract at the local airport. The contract requires he supply $9,000 worth of plumbing products. Your customer does not have the cash to pay for the additional products. he tells you that unless you can provide him some type of financing, he may lose the contract. he says that he can pay you when he finishes his next job in 60 days. Explain what you will do?

Answer 1

Line of credit works like a credit card wherein an individual, a company or a contractor will get a specific amount sanctioned from the bank which they can use and repay in parts. The unpaid amount will attract interest charges which will have to be paid by the borrower.

In the given scenario, plumber already has an outstanding due with his existing line of credit but the best part is that he is not overdue. Since there is an additional request from the plumber now, we will have to analyse the past repayment history of plumber and decide about increasing his line of credit. If plumber has a good repayment history then his line of credit can be increases and additional amount can be given to him against a collateral security. This will help both the company and the borrower to be on a safe side.

Hence plumber can be given additional amount against a collateral security.