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Financing Options For Advanced Manufacturing

J Tonkery
Jason Tonkery
Senior Vice President, Group Manager
[email protected]
(585) 419-0670 x50697

The new frontier of U. S. Manufacturing is here! Advanced Manufacturing uses innovative technologies and methods to improve a company’s ability to be competitive in the manufacturing sector. It does this by optimizing all aspects of the value chain, from concept to end-of-life considerations.

Advanced Manufacturing employs automation, computation, software sensing and networking to create greater efficiencies. It can be found in just about every industry, including electric vehicles, robotics, air structures, medical devices, pharmaceuticals, high volume goods, rapid prototyping, aerospace, and military.

The last few years have seen large investment in Advanced Manufacturing, both at the federal and state level. In 2022, President Biden signed into law the CHIPS Act of 2022. This Act provides the Department of Commerce with $50 Billion for the development of a suite of programs to strengthen and revitalize the U.S. Position in Semiconductor research, development, and manufacturing.

At the local level, Governor Hochul announced a $290 Million Electricity Substation and Green Hydrogen Fuel Production Facility in Genesee County at the STAMP site. STAMP is a 1,250 acre site that will be home to projects that include semiconductor manufacturing, renewables manufacturing, biopharma manufacturing, and other high capacity industries.

As you can see, Advanced Manufacturing is the future of U.S. Manufacturing and is receiving large investments both nationally and locally. With the increase in the manufacturing sector, comes the need for additional financing. CNB offers a wide array of financing options to accommodate equipment purchases, permanent working capital and lines of credit to assist with the growth of your company.

Loan or Lease?

Leasing allows you to try out the equipment/ vehicle without making a long-term commitment. If the asset does not meet your needs, you can return it at the end of the lease. This is a good option for assets that quickly become obsolete due to advances in technology (ie. computer hardware, software, and communications equipment). Continuing to lease those assets allows you to upgrade so you can remain up-to-date with the newest technology.

On the other hand, purchasing the asset provides you with the ability to build equity. Much like a decision to buy a car, the value of the car after your final payment has been made represents your equity. You have the option to sell it for cash or you can use the value of the vehicle toward a trade in for a new model. A good rule of thumb is if the asset’s useful life to you exceeds 3 years, purchase it. If it’s less than that, then you may want to consider a lease.

Term Loans.

These are loans that are usually repaid in monthly payments over a set period of time. Term loans are usually paid back between 1 and 10 years, and the specific equipment being financed is used to collateralize the loan. Banks tend to finance up to 90% of equipment purchases with term loans and offer your choice of a fixed interest rate or a variable interest rate.

Equipment Line of Credit.

Equipment lines of credit offer a hybrid between a line of credit and a term loan. As you have equipment needs, you can draw from the available balance with a new term note with a set repayment term. As you repay the principle of the loan, the line of credit replenishes itself by that amount of principle repayment. Equipment lines are useful for companies that make several equipment purchases per year as the line offers the company a pre-approved amount of money to draw upon for equipment purchase without having to come to the bank for approval with each purchase.

Working Capital Line of Credit.

A line of credit is a revolving credit facility generally used for short-term working capital. Companies will utilize a line of credit as their sales increase and receivables grow. The line of credit affords a company cash flow to cover expenses, such as payroll, until receivables begin to flow in. Lines of credit will typically require a 30 day out of debt period measured annually.

Advanced Manufacturing is an exciting new frontier for U.S. based manufacturing companies. Remember, it is important to speak with your accountant and financial services professional about these decisions. They will guide you through the process to help determine what the best financing structure is for you and your business.

Call our Commercial Lending Team today at (585) 419-0670 to discuss your financing options.