Company requirement • Custom Snowboards, Inc. needs an amount of $1,000,000 and it approached the bank authorities • Bank authorities thinking the proposal to accept or deny. However the bank interested to provide $1,000,000 with 15-year term at 6.75% • In this regard, the bank imposing a condition that the company must maintain the compensating balance of $300,000
Mitigating Risks The company financial leverage is increasing over the next 3 years and it will be as follows:
CONCLUSION • The company asking the fund of $1,000,000. • In this regard, bank is under thinking as it will be risk and hence can ask mortgage of the property. • Further the bank making restriction to maintain the composite balance of $300,000 which is another burden to the company.
CONCLUSION • Therefore, the company should request to decrease the maintenance of composite balance. • Further, the bank may also ask security by way of mortgage to mitigate the risk. • As the company has not enough properties for such security, it should acquire more properties by way of collateral securities.