Gun Manufacturers Confront Constrained Lending Market



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Recently, many leading lenders have decided as matter of policy that they do not want to lend money to U.S. gun manufacturers and their component suppliers. Accountants and financial advisors servicing this industry need to be aware of these restricted bank lending underwriting standards since this is very large industry within the United States. There are of course many legitimate uses for firearms including military, police, gun club, and hunting usage. The U.S. gun industry is estimated to have a $32 billion per year impact on the economy and employs over 200,000 people.

The U.S. Gun Industry Has an Extensive Supply Chain

The U.S. gun industry supply chain includes numerous suppliers, such as gun components, encompassing a wide variety of both metal and wood products. Chemicals are used to bathe and finish the metal and wood elements. Ammunition and clips are large volume replacements items. The gun components are supplied to gun manufacturers who assemble the firearms. The gun manufacturers are large purchasers of expensive, high-tolerance, computer controlled machine tools. In addition, the very essence of gun products and ammunition requires durable customized packaging and guns are sold through trade shows gun shops, sporting stores, and big box retailers.

Actual Business Example

Recently one of our clients, a large, well capitalized machine shop that supplies high-tolerance parts to a variety of industries, was preparing to finance an expensive machine tool that was ordered from Germany with a long lead time related to the customized nature of the machine. Our client's machine shop supplies a few major vertical market product categories including gun components, aerospace, textile machines, and architectural metals. The new machine tool would be used for all product lines. This was normally a routine financing transaction for the company. Our client, when getting ready to conclude the purchase, was shocked to learn that it's regular major bank of over 50 years would not finance the transaction due to the company's regular sales to a leading recreational gun manufacturer. The good news is that due to our client's strong financial position, another lender stepped in and provided financing.

Business Planning

Accounts and advisors to gun supply chain companies need to understand whether their usual bank now has policy that would preclude lending. Growing businesses are always advised to maintain good banking relationships and it takes some time and effort to educate a new lender about your business. Alternative lenders are typically available and other options may include non-bank lenders and vendor finance including leasing. Typically, advanced manufacturing machine tools are coming from non U.S. manufacturers particularly Japan and Germany so foreign owned lenders may be a logical choice.


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Authors

Charles R Goulding Attorney/CPA, is the President of R&D Tax Savers.


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