Stop Chasing the Wrong Bank for the Wrong Loan

Why the bank you’ve trusted for 15 years may not be lending, why its best offer is usually the same loan every other borrower got, and how Michigan manufacturers should finance growth instead.

By Charles M. Barr, CEO, LVRG Business Funding

The 15-Year Handshake

Picture a shop owner in Sterling Heights. He has banked in the same place for 15 years. His operating account is there, his payroll runs through it, and his house is mortgaged there. He’s on a first-name basis with his banker, gets a card from him every Christmas, and has never bounced a check.

Now he’s ready to grow. There’s a 40,000-square-foot industrial building on the market a few miles away, and he needs two new machining centers to keep up with the work coming in. So he does what almost every owner does. He calls his banker.

Here’s what 15 years of loyalty buys you in commercial lending: a meeting. It doesn’t buy you an approval, and it doesn’t tell you whether your bank is even lending right now.

In our experience, a lot of Michigan banks have quietly pulled back on commercial lending. Some have firm limits on how much they’ll put out. Others will still write new loans, but only for stellar borrowers: the companies with steady, predictable earnings, no customer concentration and nothing that needs explaining. A growing shop that just bought equipment, landed a big new customer and wants a bigger building rarely looks like that on paper, no matter how strong it is on the floor.

More banks are also steering owners toward SBA loans. The reason is simple. The SBA guarantee means the bank isn’t carrying the full risk if something goes wrong. That’s good for the bank. It isn’t necessarily the right loan for your shop. And in many cases the final decision is made by people who have never walked your operation, something we’ve covered in Why Your Bank Isn’t the Answer.

If the bank does say yes, here’s what usually comes back. A 10-year term. A rate somewhere around prime plus one. Full principal and interest starting about 30 days after closing. An annual review and your personal guarantee.

I call it the cookie-cutter loan, because it’s the same rate, the same terms and the same structure every other borrower got before you. The landscaping company got it. The dental practice got it. The distributor down the road got it. Nothing in it was built for a shop that runs two shifts, keeps a month of steel on the floor and waits 60 days to get paid.

And even when that loan closes, it rarely lasts. A shop lands a $1.5 million loan, the banker posts the closing on LinkedIn, and for a few weeks it feels like the company is finally funded. Then two new machines take a big piece of it, material and payroll take the rest, and by the third month the backlog is bigger and the cash is gone. Now the owner is making 10 years of payments on money he’s already spent, and the bank that wrote the loan isn’t in a hurry to write another one.

That’s the loan most owners end up chasing. For a growing manufacturer, it’s usually the wrong one.

Let me be clear before going further: I’m not anti-bank. Much of the capital LVRG puts to work comes off our own bank lines. Banks aren’t the problem. Chasing the wrong bank for the wrong loan is.

Three Shop-Floor Cash Traps a Standard Bank Loan Doesn’t Account For

When a Michigan shop grows, it runs into problems a standard bank loan was never designed to handle. Three of them show up again and again.

The depreciation trap. Say you bought two machining centers last year. Your CPA did exactly what a good CPA should do and wrote them off with Section 179 or bonus depreciation to cut your tax bill. Smart move. But that write-off also pulls down the net income on your tax return, and depending on how the bank analyzes the return, a shop that threw off plenty of cash can suddenly look thin on paper. The same machines that will make you money for the next 15 years become the reason your file looks weak this year.

The expansion gap. You find the building, and the bank agrees to finance it. Then the quotes come in for everything the building needs before it can run a single part: 480-volt primary power, reinforced pads under the heavy machines, crane work, and riggers to move the equipment. Call it $350,000. Banks often won’t finance any of that, and the advice you get is to pay for it out of operating cash. That’s the same cash you use for material and payroll. By the time the first machine is leveled, the working capital that was supposed to carry the bigger operation is already spent.

The day-one payment squeeze. Now move the shop. If you’re relocating 10 presses, there are weeks of teardown, rigging, re-tooling and calibration. Production drops sharply while it happens, and so does what you can bill. But the cookie-cutter loan doesn’t care. Payments start about a month after closing anyway, right when the shop is earning the least. Cash leaves the business at exactly the moment it should be staying in.

None of these traps mean you made a mistake. They mean the loan was never built for the way a shop grows.

Planning a move or an expansion? Call LVRG at (855) 998-5874 before you sign anything.

How Should a Growing Shop’s Financing Actually Be Built?

The answer isn’t a slightly better rate on the same loan. It’s a different way of building the financing, starting with how your shop actually runs.

Start with the move. An owner-occupied commercial mortgage can be built with an interest-only period sized to the move and commissioning. Principal payments don’t begin until the machines are installed, parts are running, quality has signed off and receivables are coming in again. That’s the whole point of interest-only payments on a commercial mortgage: keeping cash in the shop when the shop needs it most.

Next, put everything the expansion requires into one coordinated closing: the building, the power and infrastructure work, the rigging and a working capital cushion to carry the bigger operation through the transition. Structured together, you walk into the new building fully funded, instead of walking back into your bank six months later asking for an emergency line you may never get.

Then fix the working capital. A typical bank line, say $250,000, is set once a year off last year’s tax return. It works fine until you land the big job. Then you’re buying material for a contract worth more than your entire line, running extra shifts and waiting 60 days to get paid, and the line hasn’t moved an inch.

An asset-based line works differently. It’s backed by your receivables and inventory, so as you ship parts and send invoices, the amount you can borrow grows with them, within the line’s committed limit. It’s a line of credit that grows with your receivables instead of staying frozen at last year’s numbers, which is why asset-based lending fits so well for tool and die shops, injection molders, and stamping and fabrication shops taking on more work.

It’s worth being straight about what comes with it. An asset-based line asks more of you than a standard bank line: regular borrowing base reports, periodic field exams of your receivables and inventory, and closer monitoring. For a shop that’s growing, that reporting is usually a small price for a line that keeps up with the work, compared with turning down jobs or stretching payroll because a static line stopped at last year’s numbers.

None of this means walking away from a bank you trust. The financing is built to work alongside your existing relationship, and if one of our banking partners is involved, how your accounts are handled becomes part of the structure, not a condition forced on you. You simply stop asking one institution to do something it was never set up to do.

This is the work LVRG does every day, as both a direct lender and a capital advisor. We fund transactions directly off our own bank lines, and we arrange financing through long-standing relationships with Michigan banks, national institutions and specialized commercial lenders. Because of our volume and those relationships, LVRG frequently delivers pricing at or below prime on bank-funded structures, depending on the transaction. The rate matters. For a growing shop, the structure usually matters more.

Two Offers, Side by Side

Take a second-generation metal stamping shop in Warren that has outgrown its building. It’s running 10 presses on two shifts, has just landed a new customer program, and has a signed purchase agreement on a 60,000-square-foot building for $3.4 million. Getting the building ready will take another $450,000 for primary power, press pits and pads, crane work and rigging. And the new program means more steel on the floor and more invoices sitting at 60 days.

The cookie-cutter offer: The owner’s bank of 15 years offers a commercial mortgage on the building: a 10-year term at prime plus one, with full payments starting about 30 days after closing. The $450,000 for power, pads and rigging isn’t part of the deal, and the owner is told to cover it from operating cash. His $500,000 line of credit stays where it is, sized off last year’s tax return.

The built structure: The building is financed with an interest-only period that runs through the move and the first months of production, on a longer amortization so the payment fits what the shop earns. The $450,000 in infrastructure and rigging closes at the same table. And the static line is replaced with an asset-based line backed by receivables and inventory, which grows as the new program starts shipping, within its committed limit. The owner keeps his operating accounts at his bank.

Same company, same building, same move. With the first offer, the owner drains his working capital before the first press is set. With the second, he moves in funded, his payments step up once the presses are running, and his line grows with the new work.

That’s what financing looks like when it’s built around the business instead of a program. For deals we’ve closed, see our Deal Closings page.

Lending Money Is the Easy Part

Writing a check for a business loan or a bigger building is the easy part of what we do. Getting the structure right is the hard part, and it doesn’t happen from behind a desk.

A Michigan owner can find lending options all over the internet: national asset-based lenders, loan marketplaces, brokers and finance companies he’ll never meet. Plenty of them can quote a loan. Very few will ever walk his shop floor.

We do. We go out to the shop, see the parts being made, watch the presses run and meet the team behind them. When it matters, we bring the people who can approve the deal with us: our underwriters and analysts, bankers and credit teams, and in some cases bank presidents we’ve worked with for years. Those relationships are often what gets a deal across the finish line. Owners get the reach of many sources of capital with the attention of a local firm that knows their name.

Then we sit down and listen. Owners usually start with the good news: the backlog they want to start chipping away at, the growth year after year, the bigger building, the new hires, the bigger machines. We want to hear all of it. But we also want to hear what keeps them up at night. Maybe the company looks more profitable on paper, but receivables have stretched to 60 or 90 days, and every new order means floating more cash on top of higher costs. Maybe there’s high-interest debt dragging on cash flow, a building that should be refinanced, or equity sitting idle.

The opportunities and the pain points both shape the structure. Whether the answer is one loan for a bigger building or a full capital stack built around the next five years, it starts with understanding the business. That’s the part you don’t get from filling out an application, or from spending six months going bank to bank for the same basic loan.

And we live in the same communities as the companies we finance. When a shop in Macomb County adds a shift or moves into a bigger building, our community gets stronger too.

Five Straight Questions to Ask Before You Sign Any Term Sheet

Before you sign anything, whether it comes from your bank, from us or from anyone else, ask five questions and listen carefully to the answers.

First, ask what happens to your payments while your shop is being torn down, moved and re-wired. If the answer is that full payments start in 30 days no matter what, you know who the loan was built for.

Second, ask whether your line is frozen at last year’s numbers or grows as your receivables grow. A shop that’s about to double its billing needs a line that can follow it.

Third, ask whether the bank is taking a blanket lien on all of your equipment. It’s worth knowing exactly what you’re pledging. And if the answer is yes, that doesn’t have to stop your next move. A well-structured deal can work around it.

Fourth, ask whether the lender is looking at your real cash flow or penalizing you because your CPA took depreciation. A good lender asks why the numbers look the way they do before deciding what they mean.

Fifth, if the building needs $300,000 in power and machine pads, ask whether they’re financing it or expecting you to pay for it out of your material money. That answer tells you whether you’ll move in funded or starved.

If you don’t like what you hear, you’ve learned something valuable, and you learned it before you signed.

Who Should a Michigan Shop Owner Call First?

Southeast Michigan builds things. From the tool rooms of Macomb County to the machine shops and molders across Oakland County, this region runs on owners who know their machines, their customers and their margins better than any underwriter ever will. Right now, many of them are buying buildings, adding capacity and taking on bigger work, and the same is true for shops growing in Grand Rapids and Lansing.

Those owners deserve financing built the way they build parts: to spec.

That’s why LVRG should be your first call, not your last resort after the banks have had their turn. Bring us the building you’re looking at, the machines you need and the work you’re chasing. We’ll walk through the numbers with you before you commit to a loan that limits what your shop can become.

As a metro Detroit-based commercial lender serving Macomb County, Oakland County and manufacturers across Michigan, LVRG provides conventional business loans, working capital lines of credit, asset-based lending and owner-occupied commercial real estate financing from $500,000 to $15 million. A straightforward working capital line can close in as little as two to three weeks. Owner-occupied real estate takes longer because of appraisals and third-party reports.

“It’s the best call you’ll ever make.”
— Chris Sciacca, Owner, CCS Design, an end-of-arm tooling and automation builder for injection molders, Commerce Township

Call (855) 998-5874 or start the conversation.

Frequently Asked Questions

How do I finance a building and equipment for my manufacturing business?

Ideally, together. When the owner-occupied mortgage, equipment financing, the infrastructure work and a working capital line are structured in one closing, the business moves in funded instead of draining its operating cash. LVRG structures these packages for Michigan manufacturers from $500,000 to $15 million.

Can I get interest-only payments on a commercial mortgage during a move?

Often, yes, when the financing is structured for it. An interest-only period sized to the move and commissioning keeps principal payments from starting until the new building is producing. Many standard bank loans don’t include one.

Why won’t my bank increase my line of credit?

Lines are usually reviewed once a year against last year’s financial statements, and depreciation or a few large customers can make a healthy shop look weaker on paper. Some banks have also pulled back or limited new lending. A line backed by receivables and inventory can be sized to the business you’re running today.

Can I get a line of credit that grows with my receivables?

Yes. An asset-based line is tied to your receivables and inventory, so the amount you can borrow grows as you invoice, within the line’s committed limit.

What happens with my current bank if I work with LVRG?

Nothing you don’t want to happen. Most owners keep their existing banking relationship, and the financing is built to work alongside it. When a loan is placed with one of our banking partners, that bank will typically ask for an operating account as part of the relationship, and many clients end up preferring it. Either way, it’s your decision, and it’s simply one more part of a structure tailored to your business.

Who finances tool and die shops and injection molders in Macomb County?

LVRG Business Funding is a metro Detroit-based direct lender and capital advisor that finances tool and die shops, injection molders, metal stampers, CNC machine shops, extruders and fabricators across Macomb County, Oakland County and Michigan, in transactions from $500,000 to $15 million.

About the Author

Charles M. Barr is the CEO of LVRG Business Funding, a metro Detroit-based direct lender and capital advisor. He works with Michigan manufacturers and lower middle market companies to structure financing around how their businesses actually run and grow.