Loan Feasibility: Mr. Smith’s Luxury Chocolate Store
Date: Linda
Subject: Feasibility Analysis
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
The client, Mr. Smith, wants to start his own business. As a professional pastry chef, his idea is an independent luxury chocolate store. He estimates needing $50,000 USD to launch the business. He has already secured $20,000 USD from friends but wants to repay them. Mr. Smith needs the investment to hire one helper and to buy assets like a chocolate fountain and stock, as he already possesses a significant portion of the required equipment. He also has existing clients from previous work, generating profits. Mr. Smith previously obtained a bank loan for $30,000 USD at 15% interest, initially set 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 generating profits for the company. We will offer Mr. Smith moderate monthly fees and an extended repayment period. While he needs $30,000 USD to start the business, providing a larger amount allows him to repay his friends or invest further in the business.
For our organization, this is profitable for sustainability and growth because the return is 152% on the loan value. Lending more money allows us to extend the repayment period and charge more interest. We offer the client the opportunity to repay debts while simultaneously starting his business.
Potential Problems
One potential problem is the client’s inability to repay the loan due to various factors, such as poor business performance. For example, if there is insufficient demand for Mr. Smith’s luxury chocolates, or his client base is inadequate 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 Mr. Smith’s future market to ensure business success.
Costs
The suggested 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, resulting in a total repayment of $126,000 USD over 15 years, yielding 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 premises, which may take one week or less. Profit realization will take longer. We anticipate recovering the capital in approximately 6 years, after which we will begin receiving earnings. Keep in mind that the business could function exceptionally well, yielding positive results in a shorter timeframe and accelerating the repayment period.
The business can be successful and help improve the company’s image, promoting itself.