Funding Strategic Growth for Advanced Manufacturers
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For manufacturing companies that need to fund the growth of their business, there are distinct advantages of SBA and USDA financing.
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Funding Strategic Growth for Advanced Manufacturers
- 1. ABI Advanced Manufacturing Conference Funding Strategic Growth: Distinct Advantages of SBA and USDA Financing
- 2. Jason Walters Lincoln Savings Bank Mike Slater VITAL Financial Services
- 3. • Lender preference for real estate loans • Collateral shortages or poor marketability • Financial documentation • Financing working capital • Shorter loan terms • What other challenges do you face? Challenges Manufacturers face different challenges obtaining conventional loans.
- 4. Example Manufacturer secures new customer and in six months needs to deliver new parts
- 5. • No longer option of “last resort” • More mainstream and abundant • Fast access to capital • Can charge higher rates • Less transparency Changing Lending Landscape Nonbank Lenders and “Fintech”
- 6. Example Machine shop in Texas producing proprietary products for oil and gas industry. Went out of business after loan from alternative lender charging 30% interest.
- 7. • Inability to get a bank loan – even when your business is successful • Maxed out line of credit • Debt service that’s too high • Out-of-control interest rates from alternative lender • Unsecured creditors getting paid ahead of secured creditors • What’s the answer? Implications The implications of these financing challenges can be serious
- 8. Better Alternative The SBA and USDA have missions to support the development of the nation’s small businesses and rural areas.
- 9. SBA Loan Programs USDA Loan Programs • For U.S. based small businesses • Definition of small varies by industry • Some industries, more than 1,000 employees • For businesses operating in rural areas • No size standards • Community population less than 50,000
- 10. • Difficult to obtain • Government is lender • Not for successful businesses • Only for “small” businesses • Any bank can do them • What else have you heard? Top Misconceptions About SBA and USDA Loans
- 11. • Bank is the lender • Government provides “guarantee” • Majority are eligible, but must meet eligibility rules • Must demonstrate repayment ability from ongoing operations • Lender must be approved by SBA/USDA • VITAL is Lender Service Provider Facts About SBA and USDA Loans
- 12. • Made on cash flow • Can have less than ideal collateral • Seasonal/cyclical businesses • Finance working capital • Longer terms = manageable repayment • Rates Key Advantages Of SBA and USDA Loans
- 13. • Seed capital • Low collateral • Maximize cash flow Best Opportunities Funding Growth
- 14. • Needed to move into larger parts – smaller parts business had moved to China • Needed to remain competitive • New equipment to manufacture larger parts • New employees to run equipment • $6 million USDA loan with 15-year terms on equipment • Refinance existing debt • Add working capital • Manageable repayment Success Story Die-Casting Company
- 15. • Intangible assets • Working capital • Closing costs • Longer terms Best Opportunities Acquisitions
- 16. • Business acquisition and refinance existing debt • Buyout of company in bankruptcy • Able borrow additional $3.2 million without increasing debt service • Debt structure • SBA loan - $5 million • Real estate - $2 million • Operating loan - $3 million Success Story Central Wisconsin Manufacturer
- 17. • Longer terms • Manageable debt repayment • Working capital for transition period Best Opportunities Business Transitions
- 18. • Successful company expanded to new location • Management at existing location made missteps, jeopardizing business • Had to abandon expansion plans and retrench his core business • $5 million SBA loan • Restructure debt • Added working capital • Automated processes Success Story Pallet Company
- 19. • Lower debt service payments • Improve cash flow • Consolidate debts • Financing after loss year Best Opportunities Refinance
- 20. Success Story Military contractor weathers downturn before securing new contracts. • Business went through contraction cycle • Owner knew expansion cycle was coming • Restructure existing debt - pay down accounts payable and extended amortization • Saved $50,000/month in debt service
- 21. Questions?
Editor's Notes
- JASON Lender preference for real estate because its easy, money goes out fast Collateral shortages: blue sky, more difficult ascertain value of equipment and it depreciates Many smaller companies struggle with financial document if don’t have full-time CFO Financing working capital – speaks to collateral position Shorter loan terms = death by debt service
- JASON What do you need to fund in the next 6 months? Development costs: tooling, labor, drawings, possibly new equipment purchase Production costs, delivery costs Costs are incurred in advance of being paid by new customer Customer may not pay within 30 days How do you fund all this? Your line of credit likely won’t support all of this.
- JASON Google “small business loans” and see how many options for fast capital in search results.
- MIKE
- JASON
- JASON Joke - “I’m from the government, I’m here to help” It’s actually true! SBA and USDA provide the guarantee to BANK to mitigate the risks we just discussed. Protect YOU from predatory lending.
- MIKE “Small Business” can be a misnomer. For manufacturers, not based on sales. Can have up to 500 employees – and some subsectors, up to 1500. No size standards for USDA loans – GE could get USDA loan
- MIKE
- MIKE Explain concept of government guarantee – the SBA/USDA provides guarantee to BANK
- Mike
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- Mike and Jason
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- Jason and Mike