Loan Denial Letter

This Team Assignment requires you to:

  1. Analyze financial data and present the rationale. This information allows you to substantiate the 2018 loan denial.
  2. Participate in the Team Discussion Board located under the Unit 3 Discussion area to discuss and prepare for your team response to the checklist items.

Instructions: Read the scenario and then access the data spreadsheet below and the business letter template as well as the grading rubric. The grading rubric provides some tips on how to organize your team process.

Scenario: The Team Assignment requires an analysis of specific financial data of Bob Smith Inc. Bob is an existing bank customer. When the loan to Bob was originally made in 2016 the bank required Bob to increase the YE 2016 cash balance to at least $70,000 by YE 2017. The Cash Flow Statement and Balance Sheet show an actual YE 2017 cash balance of less than $34,000.

The Team Assignment requires participation in a team effort to complete the (partially prepared) 2017 Cash Flow Statement. In Seminar 1 you discussed how to complete and use the 2017 Cash Flow Statement outcomes to explain how specific accounts influenced Bob’s low cash balances…in other words, some reasons why Bob has no cash!

This information allows you to substantiate the 2018 loan denial. You are aware this action will create dire financial circumstances for Bob’s company. As the loan officer you must pass along the news in a business letter that is most professional and written in an objective manner. Please use values in the letter whenever possible.

Checklist: In the completed denial letter for the loan renewal for 2018:

Comparative Balance Sheets and a Cash Flow Statement are used in the analysis as provided in the data worksheet found below. After review and analysis of the Cash Flow Statement you will:


To complete only the section below.

  1. Negative Trends

Explain how the three following accounts reduced year to year cash balances and what can be done to correct the situation in the upcoming year.

Also comment on the concept applicable to the accounts; as underlined.

  • Buildup of Inventory and the impact on year to year changes in cash and discussion on Economic Order Quantity for Inventory management
  • Purchase of Plant Property and Equipment and the impact on year to year changes in cash and Modified Accelerated Cost Recovery tax table
  • Pay down of Long-Term Debt: Bank Note and the impact on year to year changes in cash and explain collateral and purpose of UCC1 filings




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