The US economy is opening up and the manufacturing supply chain is collapsing under the pressure of increased demand from consumers and industry. In the short term, this means frustration and friction, as long supply lines strive to meet demand. But, in the long run, we see increased demand for manufacturing facilities in the United States where production is more reliable and intellectual property more secure.
As the economy recovers and the repatriation of manufacturing supply chains takes hold, existing manufacturers will see huge opportunities for growth. However, growth requires investments in people, facilities, equipment and raw materials and each of these investments requires capital. When a manufacturer needs growth capital, it’s important to have a financial partner who understands your business and can deliver cash quickly and reliably. If you anticipate needing growth capital in the coming months, speak to your bank or small business finance company to determine what you qualify for and which products are right for you.
What financing options are available for small and medium businesses?
1) SBA loans offer variable interest rates between mid and upper digits. Usually, they require personal collateral, but may not require additional collateral depending on the borrower’s credit profile.
2) Equipment financing offers fixed rates in the single-digit average until mid-teens depending on credit quality. Secured by specific equipment and generally require a personal guarantee.
3) Term loans offer a wide range of rates depending on the credit, the duration and the speed of financing. Term loans may or may not be secured depending on the lender and credit profile, but personal guarantees are usually required.
4) Cash flow based financing products bear a fixed financial burden paid over the time it takes a business to record sufficient sales to repay the obligation. Finance charges vary depending on the credit profile and the strength of the cash flow. No personal money back guarantee is required.
5) Financing of purchase orders and factoring of invoices the rates vary depending on the credit standing of the manufacturer and the purchaser of the final product. Personal guarantees are generally required.
6) Revolving credit lines offer rates that start in low teens and go up from there. Personal guarantees are generally required.
The most difficult aspect of obtaining financing for many manufacturers today is the poor financial performance recorded in 2020 as a result of the pandemic. Banks and other lending institutions generally like to see stable and consistent cash flow from year to year and take a dim view of recent periods of volatility and unprofitability. Fortunately, non-bank small business lenders have developed underwriting models that weigh more heavily on recent positive cash flow than on historical financial results. This means that these lenders can offer capital to growing businesses as they recover based on recent positive cash flow data. Most commercial lenders also recognize the need for financing when business is slower and can structure transactions that support growth and sustainability throughout the year, despite seasonality and market turmoil.
Leverage PPPs and growth capital to grow
The government has done small businesses a great service during the pandemic by providing two rounds of PPP loans that have helped many people survive and prepare for an economic rebound. Many companies have taken the PPP money and, for the first time in over a year, feel financially secure enough to consider expanding. With the last round of PPP now exhausted and demand for US manufacturing heating up, we are seeing a significant increase in funding requests from manufacturers seeking growth capital. Interestingly, we are seeing more young manufacturers asking for capital than at any time in history as they seek to exploit new market trends and changing distribution channels. Before the pandemic, the average manufacturer asking for funding had been in business for 12 years. Today the average is nine.
What to expect when financing
If your business is preparing to apply for growth capital, the application process can be as simple as providing the last few months of business bank statements, a driver’s license, and authorization to withdraw business credit. and its primary owner. Financing like this can usually be provided in 1 to 2 days without the need to post any collateral. For larger sums of money at lower rates, lending institutions will often need additional information such as tax returns, financial statements, and purchase orders. Some loans will require the business to provide collateral such as equipment, inventory, or real estate. Larger loans with more favorable repayment terms generally require a more intensive underwriting process and longer approval times.
As the US economy recovers, manufacturers are leading the way. Today, small businesses have more financing options than ever before.