Welcome to ORBA?s Manufacturing & Distribution Group Newsletter, a quarterly publication focused on effective businesses management for the manufacturers and distributors. Upcoming issues will feature, financial management, process improvement, quality issues and technology articles.
This quarter?s newsletter includes two articles.? The first article examines the various financing options available through the Small Business Administration (SBA) to help manufacturers and distributors grow their companies.? The second article covers the increase in the U.S. oil supply and a little-known law entitled the Merchant Marine Act of 1920 ? also known as the Jones Act ? which may create price pressures for the shipping industry.
How Small Business Administration Financing Helps Manufacturers
By Brandon Vahl, CPA, CFE
Small Business Administration (SBA) financing should not be considered a last resort for manufacturers. There are common misperceptions associated with SBA and the loans they guarantee; however, these loans are an important financing tool especially for viable growing companies such as manufacturers.
The SBA offers several loan products to address small business needs. Below are a summary of a few:
Read more... SBA 7(a): A term loan product to fund working capital, business start-up, business acquisition, real estate, equipment and inventory. Loan amounts are up to $5M, and offer terms up to ten years. SBA 504: Long-term, fixed-rate financing for major fixed assets including commercial real estate (purchase or construction), equipment/machinery. Loan amounts up to $12.5M, and terms up to 20 years. SBA Express: Typically used for working capital, but can be used for commercial real estate purchase, equipment, inventory and other business needs. Loan amounts up to $350,000 with minimal paperwork. SBA financing has several advantages that are often overlooked by small business owners, including: In summary, the demand for SBA-backed loans is increasing, and loans where SBA approval is required, the SBA is routinely processing applications within days. The Preferred Lender Program and the SBA Express program processing times have significantly decreased over the years. Now may be an opportune time for small business owners to assess their business health and growth potential and examine how these loan products align with their capital needs. If you have additional questions regarding SBA-backed loans, contact Brandon at bvahl@orba.com or 312.670.7444.
How Do You Steer a Shipping Fleet?
By Robert Cronin, ASA, CDBV, CMC
There is an anticipated surge in the supply of oil in the U.S. this year due to an increase in shale oil production. While this will likely reduce oil prices along the pipeline routes heading down to the Gulf Coast, there is another factor that may likely offset these oil prices savings. This factor is a little-known law entitled the Merchant Marine Act of 1920, also known as the Jones Act, and is being currently challenged and tested by politicians on both sides of the aisle.
Read more... The Jones Act is a piece of post-World War I legislation originally aimed at assuring the continued existence of a U.S.-based merchant marine fleet. This Act requires that any shipments between two U.S. ports be transported on vessels built in the U.S., owned by U.S. citizens and operated by U.S.-based crews. While this may assure the continuity and health of a merchant marine fleet in the U.S., it also serves to restrict the movement of goods around the U.S. via marine shipments, as there are only 40,000 vessels available to ship goods across the country. While the maritime shipping industry is the most cost effective means of transporting oil around the country, the limitation of U.S. owned and operated equipment and resources serves to not only prop up maritime shipping prices, but also forces companies to use alternative, more expensive means of shipping such as rail and trucking. Some proponents of the Act argue that this legislation helps to protect approximately 74,000 maritime shipping jobs in the U.S. Additionally, supporters state that the Act insures that there will always be a maritime shipping fleet available for the military to help national security. More ships can always be constructed, they argue, to cover the additional capacity requirements. Opponents of the Act state that the law is nothing short of protectionism for unions and the U.S. shipping industry and argue for its repeal. They state that the industry is already showing signs of significant capacity constraints which are not keeping up with demand. Some operators also point out that requiring vessels to be built in the U.S. further restricts to expand capacity, since it can cost more than $100 million to construct a ship in the U.S., versus the $35 million to $50 million it costs to build a ship in Europe. In conclusion, while it is certainly good news that the increase in the U.S. oil supply will likely ease fuel costs, there are other factors that may come into play that may keep the prices level. One of the most significant of these factors will be the challenge of oil producers, refiners and shipping companies to move the oil around the country where it is needed without having to increase shipping costs. Whether changes can be made to current shipping laws to alleviate pricing pressures will likely play out in the upcoming economic cycles remains to be seen. If you have additional questions regarding this article, contact Bob at rcronin@orba.com or 312.670.7444.
Source: http://www.orbablog.com/accounting-and-finance/manufacturing-newsletter/
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