Butler Lumber's Current Bank

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Butler Lumber Company is a lumber distributor that sells plywood, moldings, and sash and door products. Butler Lumber has enjoyed rapid growth in recent years. Their growth has been built up largely on the basis of successful price competition, made possible by careful management on of operating expenses, and by purchasing materials at a substantial discount. Due to the rapid growth and a shortage of cash in 1990, the company has determined they need to raise additional funds and are looking to do this by increasing their bank borrowings. Butler Lumber’s current bank, Suburban National Bank, will not loan Butler more than $250,000, and so the company has had to rely on trade credit to stay under this limit. A larger bank, Northrop National Bank, is considering extending a loan of $465,000 to Butler Lumber. George Dodge, an officer at Northrop National Bank, must determine if the bank should improve the loan, and then work out the specific details of the loan. Mr. Dodge has a number of options; he can agree extend the loan with the standard conditions for a loan like this, he can agree to extend the loan but modify the conditions of the loan, or he can choose to refuse the loan. Mr. Dodge can choose to extend the loan to Butler Lumber, and impose the standard conditions for a loan like this. Butler Lumber is experiencing rapid growth, and the company’s annual projections, and quarter performance suggests that this growth is continuing. The bank would also be able to set

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