He knows that if he can increase his inventory with goods at the lower price, his average unit cost will be lower and profits would increase accordingly. Ballast calls a financial consultant to discuss his problem. Ballast is advised to submit a current balance sheet reflecting higher cash assets to obtain a more favourable line or credit. Although Ballast favours such a move, he also wants to avoid a long-term debt commitment. He fears that the interest payments from such a debt would wipe out any gains made by buying the additional inventory on sale.
Owner borrows moneys from lender.
The consultant suggests that a personal loan be made to Ballast. The funds from this loan are to be placed in a savings account in the name of Ballast's company. After the funds are deposited, the company would have a new balance sheet prepared according to accepted accounting practices, which would reflect its increased liquidity. With the stronger financial picture presented, the supplier could be more favourably disposed toward extending the line of credit. Ballast is convinced that this is a sound approach and enters into an agreement to implement the plan whereby the funds would be provided by a lender supplied by his consultant.