Clarkson Lumber
Harvard Business School
9-297-028
Rev. October 29, 1996
Clarkson Lumber Company
After a rapid growth in its business during recent years, the Clarkson Lumber Company, in the spring of 1996, anticipated a further substantial increase in sales. Despite good profits, the company had experienced a shortage of cash and had found it necessary to increase its borrowing from the Suburban National Bank to $399,000 in the spring of 1996. The maximum loan that
Suburban National would make to any one borrower was $400,000 and Clarkson had been able to stay within this limit only by relying very heavily on trade credit. In addition, Suburban was now asking that Mr. Clarkson guarantee the loan personally. Keith Clarkson, sole owner and president of the Clarkson Lumber Company, was therefore actively looking elsewhere for a new banking relationship where he would be able to negotiate a larger loan that did not require a personal guarantee. Mr. Clarkson had recently been introduced by a friend to George Dodge, an officer of a much larger bank, the Northrup National Bank. The two men had tentatively discussed the possibility that the Northrup bank might extend a line of credit to Clarkson Lumber up to a maximum amount of
$750,000. Mr. Clarkson thought that a loan of this size would improve profitability by allowing him to take full advantage of trade discounts. Subsequent to this discussion, Mr. Dodge had arrange for the credit department of the Northrup National Bank to investigate Mr. Clarkson and his company.
The Clarkson Lumber Company had been founded in 1981 as a partnership by Mr. Clarkson and his brother-in-law, Henry Holtz. In 1994, Mr. Clarkson bought out Mr. Holtz’s interest for
$200,000. Mr. Holtz had taken a note for $200,000, to be paid off in 1995 and 199 6 in order to give Mr.
Clarkson time to arrange for the necessary financing. This note carried an interest rate of 11%, and was repayable in semi-annual installments of $50,000, beginning
9-297-028
Rev. October 29, 1996
Clarkson Lumber Company
After a rapid growth in its business during recent years, the Clarkson Lumber Company, in the spring of 1996, anticipated a further substantial increase in sales. Despite good profits, the company had experienced a shortage of cash and had found it necessary to increase its borrowing from the Suburban National Bank to $399,000 in the spring of 1996. The maximum loan that
Suburban National would make to any one borrower was $400,000 and Clarkson had been able to stay within this limit only by relying very heavily on trade credit. In addition, Suburban was now asking that Mr. Clarkson guarantee the loan personally. Keith Clarkson, sole owner and president of the Clarkson Lumber Company, was therefore actively looking elsewhere for a new banking relationship where he would be able to negotiate a larger loan that did not require a personal guarantee. Mr. Clarkson had recently been introduced by a friend to George Dodge, an officer of a much larger bank, the Northrup National Bank. The two men had tentatively discussed the possibility that the Northrup bank might extend a line of credit to Clarkson Lumber up to a maximum amount of
$750,000. Mr. Clarkson thought that a loan of this size would improve profitability by allowing him to take full advantage of trade discounts. Subsequent to this discussion, Mr. Dodge had arrange for the credit department of the Northrup National Bank to investigate Mr. Clarkson and his company.
The Clarkson Lumber Company had been founded in 1981 as a partnership by Mr. Clarkson and his brother-in-law, Henry Holtz. In 1994, Mr. Clarkson bought out Mr. Holtz’s interest for
$200,000. Mr. Holtz had taken a note for $200,000, to be paid off in 1995 and 199 6 in order to give Mr.
Clarkson time to arrange for the necessary financing. This note carried an interest rate of 11%, and was repayable in semi-annual installments of $50,000, beginning