Merit Enterprise Essay

985 WordsFeb 9, 20154 Pages
Merit Enterprise Corp Merit Enterprise Corp (MEC) is a privately held company that enjoys the benefits of private ownership. The company’s brisk business has put it in the position to expand. The CFO, Sara Lehn, now faces two options to finance the expansion. The first allows the company to remain private but the second would change MEC to a publicly traded company. Both options offer strengths and weaknesses of operation. The first option allows MEC to remain in private ownership but would likely bring in an institutional investor. To date, it has only been held by individual investors who have put a board of directors in place to govern the company’s actions. Sara points out that JPMorgan Chase will most likely restrict further borrowing by the company and gain oversight of their financial statements. By taking such a substantial loan from JPMorgan Chase, the bank will not only monitor but also have direct influence on the company. Gitman and Zutter (2012) explain that institutional investors exert pressure on the corporate governance through its management or by communicating its concerns to the firm’s board (pg.21). This will be a change from the normal operating procedures. But, this is not the only change. Borrowing this sum will limit any additional future plans the company may decide on. It is likely the bank will freeze the company’s ability to borrow any additional funds. While the loan is designed to help the company expand in this particular area, it will now be limited for years to come. If they are unable to quickly repay the loan the company could find itself stalled at later dates, which could become a deterrent to future customers. Over the repayment period, you commit a certain amount to repaying your debt. While the funds may help you expand initially, the debt obligations can make it difficult to keep up with monthly expenses

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