Issue link: http://www.insightdigital.biz/i/1164927
42 | /INSIGHT ON MANUFACTURING • September 2019 w w w.in s i g h t o n m f g . c o m W H I L E T H E C U R R E N T E C O N O M I C expansion is the longest since 1900, one survey shows that two-thirds of manufacturers are preparing for an economic downturn. The 2019 Manufacturing and Distribution Report, by Sikich, shows that while only 27 percent believe we will enter a recession in the next 12 months, 63 percent are preparing for an eventual downturn. Lining up alternative financing is smart — even if cash flow isn't an issue now, it can quickly become one. Consult with your financial professionals to make sure you choose the right option for your business. Alternative financing addresses an important stage in a company's life cycle, funding a portion of the economy that banks cannot service because of federal regulations. Alternative financing can be beneficial for companies: • With limited profitability, losses and not much equity • With valuable assets, such as accounts receivable, inventory or equipment with resale value, and a consistent revenue stream • That don't qualify for traditional bank financing Examples of alternative financing options 1. Factoring. Your company sells your invoices to the factoring company, which then advances you an amount against the invoices immediately. The factor notifies your customers that they've purchased the invoice and instructs customers where to send payment. The factor receives payment for the invoices and remits the balance (the reserve) back to you, taking out its fees and charges. Factoring generally takes only a few weeks to put into place and works for companies with good receivables and creditworthy customers. Although the pricing is higher than a traditional bank line of credit, a factoring facility can be more flexible and grow with a fast-growing company. 2. Purchase order financing. Purchase order financing often goes hand-in-hand with factoring. Imagine that you import paper towels and you get a big order from a large national retailer, but you don't have the money to get that into production. A purchase order finance company puts up a significant portion of the purchase price for the finished goods and pays your supplier, but they often want to work with a factoring company so they can be paid through the factoring company as soon as the inventory ships to the customer. 3. SBA loans. SBA loans are specifically for companies that do not qualify for bank financing. Banks make SBA loans, which the federal government guarantees up to a certain percent. SBA loans range from relatively small up to $5 million and feature long amortization — 10 years for a working capital loan and 25 years for a commercial real estate loan. The interest rates are also very attractive. SBA loans are for specific purposes, and they may require a down payment. The application, documentation and approval process can be extensive; however, working with an SBA Preferred Lender should help smooth out the process. Beyond business loans INSIGHT FROM ... BILL ELLIOTT, president of First Business Growth Funding Alternative financing for manufacturers