Hampton Machine Tool Company

On September 14, 1979, Mr. Jerry Eckwood, vice president of the St. Louis National Bank was considering a loan request from a customer located in a nearby city. The company, Hampton Machine Too] Company, had requested renewal of an existing $1 million loan originally due to be repaid on September 30. In addition to the renewal of the existin- loan, Hampton was asking for an additional loan of $350,000 for planned equipment purchases in October. Under the terms of the company's request, both loans, totaling $1.35 million, would be repayable at the end of 1979. Since its establishment in 1915, Hampton Machine Tool Company had successfully weathered the severe cyclical fluctuations characteristic of the …show more content…

Eckwood, Mr. Cowins had made his request for the extension of the existing Hampton note until the end of the year, plus an additional loan of $350,000 to finance equipment purchases. The additional loan would be needed by the end of October and would be payable at the end of the year with monthly interest payments remaining 1112.% of principal. In his letter, Mr. Cowins commented at some length on the company's financial condition, the reasons for the shortfall of actual from projected 1979 shipments, and Hampton's substantial back-log of firm sales orders. In addition, Mr. Cowins stated that he expected to be able to repay both loans in full by December 31, 1979. Mr. Cowins' letter is presented in full as Exhibit 4. Although Hampton would not need the additional 5350,000 loan until the end of October, the maturity date of the existing note was fast approaching. Therefore, Mr. Eckwood needed to decide upon a response to Mr. Cowins' request.

Exhibit 4

HAMPTON MACHINE TOOL COMPANY
East St. Louis, Illinois September 12,1979

Mr. Jerrv Eckwood
Vice President
St. Louis National Bank St.
Louis, Missouri

Dear Mr. Eckwood:

I enclose the company's August 31 financial statements. While these statements show our cash balance as $1,559,000, you will note we have an obligation to a customer for cash advances of $1,566,000, and we expect to ship this order over the next three months. With respect to our note for $1,000,000 due