Loan Feasibility: Mr. Smith’s Chocolate Store Venture
Loan Feasibility Analysis: Mr. Smith’s Business Plan
Date: Linda
Subject: Feasibility of a Loan
After studying, analyzing, and evaluating all aspects of the case, the loan could be a good investment for the organization. This report discusses the background, benefits, problems, costs, and timeframe involved in executing the plan.
Background: Mr. Smith’s Business Idea
Mr. Smith wants to start his own business. He is a professional pastry chef, and his idea is an independent luxury chocolate store. He estimates he needs $50,000 USD to start the business. He already has $20,000 USD from friends but wants to pay them back.
Mr. Smith needs the investment to hire one helper and to buy assets like a chocolate fountain and stock, because he already has a significant portion of the required equipment. He also has existing clients because he has been working and generating profits.
Mr. Smith previously obtained a bank loan for $30,000 USD at 15% interest, initially to be repaid in 5 years, but he repaid it in two years.
Benefits of the Plan
The plan offers a good return on investment and an achievement for the organization. The business idea is well-developed. Approving the loan for $50,000 USD at 15% interest over 15 years will benefit the client while the company generates profits.
We will offer Mr. Smith moderate monthly fees and a longer repayment period. While he needs $30,000 USD to start the business, we will offer him a larger amount so he can repay his friends or invest more in the business.
This is profitable for the sustainability and growth of the organization because the return is 152% on the loan value. Lending more money allows us to offer more time and charge more interest. We will give the client the opportunity to repay his debts while starting his business.
Potential Problems
One potential problem is the client’s inability to repay the loan due to factors such as poor business performance. For example, if there is insufficient demand for Mr. Smith’s luxury chocolates, or his client base is not large enough to generate profits, the business may fail. If Mr. Smith declares bankruptcy, we will not receive repayment. This would also not contribute to the promotion of the organization. It is necessary to study the future market for Mr. Smith’s products to ensure business success.
Costs
The proposed loan involves lending $50,000 USD for the business start-up and debt repayment, with 15% interest to be repaid over 15 years. Monthly fees would be $700 USD, and over 15 years, we would receive $126,000 USD, resulting in a gain of $76,000 USD. This represents a 152% return on investment.
Timeframe
Full approval of the requested loan will take more than 2 days. Mr. Smith can then begin purchasing equipment and organizing the business location, which may take one week or less.
It will take a significant amount of time to realize profits. We anticipate recovering the capital in approximately 6 years, after which we will begin receiving earnings. Keep in mind that the business could function very well, yielding good results in a shorter time and shortening the repayment period.
The business can be successful and help improve the company’s image, promoting itself.