Sam Wilson is requesting a loan to purchase farm machinery from Hiram McCard. Hi owns several farms in the area and as part of his estate planning, he is selling these farms and associated equipment. Sam is buying the equipment.

Sean Miller, a junior loan officer at Insights Bank and Trust, has provided you with a presentation sheet for the Sam Wilson loan. Follow along as Sean presents the loan.

In Sean’s report, you found out that Sam Wilson is a good customer and that the directors know him as a man of his word. You also found out that the machinery he is buying is probably worth at least as much as Sam is paying for it and that he is putting down one-third of the purchase price.

Sean notes that Sam will pay off the loan with the profits from his farm operations and, if they aren’t enough, he has a $500,000 Treasury note coming due in six months that he can use to make the payment. Finally, Sam’s wife is willing to co-sign on the loan as a measure of extra comfort. Sean tells us that Sam’s wife has her own business interests and a sizable personal net worth.

What do you think?

• Should the bank loan Sam the money?
• Is credit risk the only issue you need to consider as you review the loan? Are there others?