For many manufacturers, 2020 was a crash course in operational survival. What do we need to do to keep employees safe from a pandemic? How do we rectify supply chain disruptions? How do we maintain production levels?
But “crisis mode” is not a viable business model. As such, manufacturers are evaluating what they need to do not only for the short term, but what adjustments they need to make in order to advance business goals and establish sustainable growth for the years ahead. Making calculated investments to facilitate operational improvements-and financing those investments in a manner that will not compromise cash flow-will be fundamental to success. With that in mind, this blog will:
To be clear, the economic fallout created by the 2020 global pandemic is NOT the 2008 financial crisis all over again. In fact, the 2008 crisis prepared the U.S. to better weather the current storm. Local, state, and federal measures were promptly enacted in 2020 to help prevent a complete economic collapse. Although serious financial challenges persist, bank operations were strong moving into the latter part of 2020. What’s more, banks were poised to not only provide pandemic-related financial relief, but capital to finance operational advancements.
When The Federal Reserve slashed interest rates to near zero in March of 2020, it created a mechanism to support the flow of credit to U.S. businesses. Historically, when the Fed cuts interest rates it enables banks to borrow from the Fed on more favorable terms. In the past, banks and their financing arms have pounced on these favorable terms to deliver as many qualified loans at lower interest rates to their customers as possible.
In September of 2020, Federal Reserve officials indicated that the low rates will remain “until the economy is far along in its recovery.” In the September statement, the Federal Open Market Committee said it would hold rates near zero until the job market reaches full employment “and inflation has risen to 2% and is on pace to moderately exceed 2% for some time.” That will likely not occur until at least 2023.2
With manufacturing optimism rebounding and the availability of cheap capital, established manufacturers-particularly mid-sized companies—face a unique opportunity to fund operational improvements in an extremely low-impact manner. By utilizing a low-interest loan to finance capital expenditures that will have a quick and steady return-on-investment, manufacturers may be able to subsidize principal and interest payments through the cash flow improvements. Under these circumstances, being cash flow positive may be possible almost from the onset of the loan. To take full advantage of this, manufacturers will need to:
Lenders may have favorable terms at their disposal, but they will also be looking to minimize their own risk. Proceed with loan inquiries diligently. Navigating loan requirements can be a complex undertaking during the best of times—add in secondary financing distributed to help businesses bridge financial gaps resulting from an economic crisis and the requirements can become more restrictive. When pursuing a new loan, be sure to verify it will not interfere with the terms of existing loans.
More and more manufacturers are leveraging increased automation to create positive financial gains. Today’s advanced automation capabilities enable manufacturing companies to:
Manufacturers who take advantage of favorable credit conditions to fund automation improvements will position their operation for a resilient, growth-focused future.