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b ack of f i ce This is where governmentguaranteed financing can be an alternative to conventional bank loans. Small Business Administration (SBA) loans offer longer maturities — up to 25 years, fully amortized. U.S. Department of Agriculture (USDA) business loans can be even longer — up to 30 years, also fully amortized. Manufacturers can also benefit by locking in interest rates. Government guaranteed financing programs offer fixed rates for up to 30 years, compared with only five years on conventional loans. Longterm, fully amortized loans (and especially at today's low fixed interest rates) can contribute to business stability over time. The debt service requirement is set and, because there's no balloon payment, this is a much more patient approach. There are two main reasons why owners don't take advantage of guaranteed loan programs: 1) These programs require more paperwork, and 2) The governmental fees are higher. Those factors are worth weighing, but owners should view long-term financing as an insurance policy against potentially rockier times in the future. Lines of Credit Many manufacturers finance all their debt on lines of credit, which can result in lines of credit always having a balance and offering little availability. When going through an expansion, this situation may be a problem because owners can't fund increases in current assets such as inventory and accounts receivable. Manufacturers can avoid this problem by securing long-term loans for long-term assets — such as a 10-year Services that Measure Up equipment loan and a 25-year real estate loan — and also obtaining the maximum line of credit possible for the longest term possible. For example, the SBA offers a program called CAPlines, with maturities of up to 10 years, compared to only one year for conventional lines of credit. Taking a strategic approach helps free up lines of credit to ensure flexibility throughout an expansion process. Ultimately, risk mitigation in financing is about business owners having a safety net and maintaining control. Ideally, commercial bankers will help owners think along these lines as an advocate for the business to prevent problems in the future. Craig Aderhold is executive vice president and senior commercial banker for Wisconsin Bank & Trust. He is based in Green Bay. Leader and executive coaching When your coaching investment counts… Hire the most qualified and experienced coaches. Find out more at www.bxwi.com Fox Valley 920-687-8782 18 | Milwaukee 414-763-1520 / insight on manufacturing • November 2013 info@enVisionPerformanceSolutions.com www.enVisionPerformanceSolutions.com Gail Wise, PhD (920) 573-0089 Tom Wiltzius, PhD (920) 733-2120 w w w.in s i g h t o n m f g .c o m