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