Random Thoughts – Boat Manufacturing

Water Boats is a new company requesting a $560,000 loan to purchase equipment to manufacture boats in Anytown, USA. The owners will inject equity of $300,000 into the business which is more than the 20% required. Collateral offered will be a first security interest in equipment valued not less than $560,000. Term bank commitment is five (5) years. The company will create 65 permanent jobs. The company is projected to earn $3,500,000 in sales the first year with a net income before taxes of $945,000. If net income decreases to $300,000 the company will generate sufficient cash flow to service the debt. The principal who is President of Water Boats will personally guaranty the loan. His net worth is $750,000 as reflected on his personal financial statement prepared in August 1997.

Water Boats will be owned and operated by two individuals. They have many years’ experience in the boat building business. Company will lease and operate a recently vacated Boat Manufacturing facility in Anytown, USA. The outlook for Water Boats is enhanced due to the fact that the technical staff maintained by another company still resides within the Anytown community and is prepared to work. This request would serve as an interim credit facility that would subsequently be replaced by a larger loan funding. The purpose of this request is to acquire the necessary equipment for Water Boats to become operational.

Water Boats has raised $1,600,000 in equity capital that would be utilized to secure this interim request. As indicated the company will replace this credit with a larger loan funding within 90-120 days. The primary objective is to begin operations immediately in order to capture the employment pool that is currently in place. It is recommended that this credit maintain an interest-only requirement until a determination of take-out is accomplished.

Water Boats will be a sister company to Joe Boats of Anytown Two, and has been in existence since 1987. Their primary emphasis has been in providing high quality, patented boats for commercial and recreational use. The existing patent associated with the hull design is owned by the company founder John Doe. Company is a licensee of the intellectual property, and serves the southeast U.S. market.

Water Boats will also maintain a license to produce and distribute the large hull boats. In addition these boats are manufactured with all-welded construction and maintain no rivets. The company’s strategy will be to produce and distribute these patented vessels to boat dealers for retail distribution, with various government agencies, and commercial entities throughout the U.S. These relationships currently exist as a result of the long-standing history and reputation of the principal owners.

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