Essay on Be Our Guest Case

606 Words Oct 15th, 2011 3 Pages
Be Our Guest

Be Our Guest, a Boston based company, is a rapidly growing equipment rental company with substantial seasonality in its revenues and profits. For years, the company has been renting party supplies and furniture to caterers, event planners and hotels; it has also managed to grow gradually in a very volatile and seasonal business. The founder, Stephen Lizio and co-owners Al Lovata and Simone Williamson found it difficult to fund daily operations because of seasonal cash shortages. In 1996, the company had secured a $100,000 revolving line of credit at the prime rate plus 1.5%, and a $390,000 five-year loan at a fixed rate of 9.25%. By the end of 1997, the loan outstanding balance was reduced to $315,000 and the monthly
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In the short run, refinancing its existing debt to obtain better terms, such as lower interest rates, is also a likely way to quickly free up cash. The company has very strong balance sheet and profitable growth, so it has plenty of bargaining power to negotiate a better deal with State Street, especially in a banking climate where financing is plentiful. All of those covenant on State Street's loan, like prohibiting two consecutive quarters of net losses and not incur a net loss for any fiscal year, suggest further that Be Our Guest may need to find another lender who will not be as strict with its terms. Ultimately, the company must devise a plan for funding its growth long term. While refinanced bank loans may be adequate to finance the company, it should consider raising funds from selling equity. Proceeds from such a deal might be invested in a business that generates revenue during Be Our Guest's slow seasons and eases the firm's reliance on credit for working capital. The way the company should approach the bank should be in a way that would allow Be Our Guest be comfortable, specify its own terms and not let the bank tell them what to do. The company is in good standing in terms of sales and revenues. Even though they have low seasons, the bank needs to accept the fact that this company is in seasonal business and that profits come at different
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