I'm with a production machine shop in Texas. Currently we are having to make a few really big (big for us) steel purchases for government projects, and we are needing a line of credit, loan, SBA loan, etc. I was hoping somebody on here could help give me some options. Our local bank we normally use offered us a loan but interest was nearing 10% (that might just be what it is everywhere). We are looking in the $200,000 - $300,000 range.

Send me a PM or reply to this thread if you might have help.

Guessing this will be unsecured? Any hard assets you could secure it against to get a lower rate? What type of duration until payoff? Who is your current lender?

An unsecured loan that your local bank has to house on the balance sheet is not going to be cheap right now. That amount won't really interest any of the larger banks without an existing relationship.

An SBA loan is definitely an option, especially if this is going to potentially balloon into additional working capital requirements from additional projects. Find a local SBA Preferred Lender and get to work on the paperwork and application. Plenty of those in Texas.

Alternate approach would be a private debt placement, but that won't get you any cheaper on interest. No reason to really go that route.

Wouldn't the equipment secure the loan if it's purchase money?

500,000ags said:

---

Wouldn't the equipment secure the loan if it's purchase money?

---

They're not purchasing equipment if I understood. They're ordering steel to then do something with.

Going to need a lot more than that to put up as collateral since I'm sure it's highly costly, timely, and effort-intensive to liquidate in event of a default.

Ah, I see.

Do you have decent invetnory and/or AR that you can pledge to a lower cost facility. In this market, lower cost is SOFR + 250bps so not cheap money compared to a few years back.

I'm guessing they're likely talking about an SBA option at that size of loan request. If so, you're going to pay Prime + 1 or 2% which would put you near 10%.

It's not terrible in this market, and if it has favorable terms like the SBA can offer, it may be good.

Direct to the government? Wonder if factoring is possible if it is. No clue on rates though.

You have an open line/history with the place your going to buy the raw material from?

JFrench said:

---

Direct to the government? Wonder if factoring is possible if it is. No clue on rates though.

You have an open line/history with the place your going to buy the raw material from?

---

Factoring is going to be 1.5%-2% every 30 days depending on the quality of the account debtor. Would be an option for cash flow on AR, but an SBA loan would be better for longer term assets or permanent working Capital

Yes we are making defense products for the Arsenal directly. We are a prime contractor.

Verabank

Good info. Not sure it's in play. Suppose it depends on how quick of production of parts and how quick he gets the supply. Never done it but always been intrigued by that facet of the market. Maybe a texags factoring Co comes out of this.

Care to share details of the material?

Assuming the timeline between buying and billing the gov isn't terribly long an LOC maybe a better fit than a multi year loan. I've dealt with Live Oak and JP on this and both have govcon specific branches that will take the nature of the industry into account and set your borrowing base at 90% of prime ar. We have a sofr based LOC with live oak now and they are preferential towards those with dod work based on our experience shopping a couple years ago.

If y'all have growth plans you can lump in with the steel supply need, 7a may be a good fit too.

Depending on which level of government, time from raw material purchase to payment to a finish product could be lengthy.

Many projects require bonding / surety. Once that is in play, unsecured lending is one of your only options.

Line of credit with personal guaranties is how we have done it. Helps to have rich friends who will lend a balance sheet for an agreeable payment.

Include financing costs when dealing with the gubmit. I got paid this week on a project completed in January 2020. I had a discussion today with another guy who just settled payment with a NE state for work they did following Hurricane Sandy.