Financing for Manufacturing Growth
Many Australian manufacturers seeking growth in their manufacturing businesses look towards business financing. There are multiple financing option and suitability is determined by considering stage of business and trajectory, industry sector, business model, macroeconomic variables, and cost-effective automation requirements. Today, the owners of manufacturing firms can no longer be unacquainted with terms like financial modeling, projections, cash flow and leverage since these factors provide a view towards the firm’s future roadmap. So, what are the various funding options available to manufacturers? Let’s find out more in this blog.
Lender-Based Financing
- Financing through a bank lender: Bank lenders rely on the ‘five Cs’ of Credit (capital, capacity, collateral, character, and conditions) to determine if a potential borrower is capable of servicing and repaying a loan.
- Financing through a non-bank lender: These lenders tend to be more specialized, flexible, and willing to take on different levels of risk. They also tend to finance for certain specified requirements, such as invoice finance, trade finance, and equipment finance.
- Financing from savings, mortgage extension or loans: Financing through personal savings, a mortgage extension or a loan allows the business to avoid the complexities that come with spending other people’s money and allows the owner to retain equity. Also, a personal loan will probably come with a lower interest rate, as it’s likely the bank will secure the lending against the owner’s personal assets.
Investor-Based and Public Financing
- Financing provided by investors: These may include ‘angel’ investors, private equity, or venture capital. Angel investors typically assume a greater risk than other funders, with the expectation of a high return. Private equity investors actively seek to enhance a business’s profitability and operations and seek a profitable exit through either a sale or public listing. Venture capital investors provide private equity funding together with a strategic focus to the business.
- Crowd-sourced funding: Crowdfunding or crowd-sourced funding — where a heavy steel fabrication company raises money from a crowd of investors through a licensed online platform — is popular in certain sectors such as technology. The most common model is equity-based, crowd-sourced funding through which a company issues shares to a crowd of investors in exchange for their funds and in return, the investors gain some part-ownership of the manufacturing business.
- Employee buy-in: Allowing an employee or employees to buy into the manufacturing business could be part of an effective succession plan. It is important to consider whether the owner can work effectively with these employees as part of a team. Unwinding this arrangement can be difficult and unsettling for the firm.
- Grants and incentives: This includes grants available from government agencies that could fund growth, exporting or research and development. With the benefits of using local Australian steel companies becoming more apparent, financing should grow at a similar rate. The application process can be time-consuming and competitive and professional assistance may come in handy when getting approvals for grants.
Closing Words
Ensuring the growth of a manufacturing firm into diverse areas such as pipe fabrication is the owner’s responsibility and this includes financial stability. Juggling the demand of business stakeholders while putting the firm on a road towards expansion is a tough role to play, however the owners of Australian manufacturing firms’ need to be able to adapt themselves to the ever-changing market conditions. In recent times, financial advisory services have been playing an increasingly important part in providing insights into various funding streams available to manufacturers. However, it is essential for the owners to be empowered to make important decisions in this regard – after all, success usually comes to those who are too busy to be looking for it!