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.
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
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