One of the National Bank’s commercial lending managers has a meeting scheduled with a business…

One of the National Bank’s commercial lending managers has a meeting scheduled with a business client. The purpose of the meeting is to review the structure of the loans provided by the bank. The business client operates in the mining sector and is very concerned at the possibility of a significant slowdown in the sector. The client wishes to discuss the relationship of its longer-term debt commitments and the forecast future cash flows being generated by the business.

(a) Within the context of the forecast slowdown in the mining sector, why is the client concerned about the timing of cash flows?

(b) Discuss the different longer-term loan repayment structures that National Bank may be able to offer the business client.