Lumber Industry Funding
Few people think about where the materials came from to build their house, furniture in their homes and offices, or even everyday products such as paper, paint, and so forth. Basically, people don’t really think much about the timber, lumber, and wood industry unless they are working directly in the timber world. However, timber, lumber, and wood production are vital components to many products – as mentioned, timber is utilized to build our homes and the furniture in it, paper, paints, photographic film, and other wood by-products. Additionally, all of these creations have leftover products. For example, mass production of lumber and plywood have a lot of leftover chips and bark sawdust.
In order to remain sustainable and environmentally friendly, many major timber, lumber, and wood companies find alternative, creative ways to utilize these leftover materials; thus, major lumber, timber, and wood business owners are able to convert these chips and sawdust remnants for other things, such as bark for landscaping and generating electricity for paper and lumber mills.
The topic of sustainability in terms of timber and lumber production has plagued the timber, lumber, and wood industry for decades – but there are many topics of discussion that need to be had in terms of this debate to encompass all perspectives and viewpoints. When it comes to the environmentally friendly consumer, many people claim that logging is leading to deforestation, which in turn has detrimental climate change effects. This has led to various policy initiatives that limit the amount of work than can be done in terms timber and lumber production. Alternatively, these same consumers still buy products that contain wood, but now these timber, lumber, and wood businesses cannot supply enough wood to meet demand, particularly throughout North America and parts of Europe.
This ethical dilemma has greatly contributed to the illegal deforestation issues throughout our world today, which in turn has only fueled the illegal wood trade. Not only does the illegal wood trade affect the rapidly increasing negative effects of deforestation, but it also impacts many legal producers within the timber, lumber, and wood industry in the United States. As the demand for more housing continues to increase in the United States, so does the demand for wood products to create these homes – and all of the other objects inside of the house, such as cabinets and so forth. In the end, one of the top goals for many business owners in the timber, lumber, and wood sectors has been to educate consumers about the sustainability of promoting and purchasing legal wood products and contracting with legal wood suppliers.
Timber, Lumber and Wood Industry Trends
All in all, even as regulations remain strict for the timber, lumber, and wood business world, there has remained consistent growth since the 2008 recession. As the economy continues to successful rebound, and as unemployment rates remain low, the timber, lumber, and wood markets remain strong. Unfortunately, 2016 was a more difficult year for many timber, lumber, and wood business owners, mainly due to a few key areas, including trading burdens and increased costs for log prices. In the end, many timber, lumber, and wood businesses should be focusing on these key areas to ensure a successful year:
- Increasing Log Prices Hinder Financial Growth: As mentioned above, log prices are continuing to increase, which has hit many timber, lumber, and wood business owners hard in the past few years. While there is still financial growth in many key timber, lumber, and wood sectors, this is still hindering the amount of growth that many timber, lumber, and wood business owners would like to see. Major contributors to rising log prices include difficult and unpredictable seasonal weather patterns, as well as seasonal logging restrictions. Unfortunately, seasonal weather patterns are changing, and these weather patterns are drastically affecting many industries throughout the United States ranging from logging all the way to agriculture. While log prices have increased over the years, timber, lumber, and wood companies have been able to keep finished product prices relatively the same. Additionally, lower wood imports at the beginning of 2017 have contributed to keep finished product prices low.
- Housing Demand Grows, Increasing Demand for Timber and Wood: As the unemployment rate remains low throughout the United States, more Americans have access to higher rates of disposable income. Thus, many people are upgrading their homes, or becoming first time home buyers, which is rapidly increasing the demand for homes throughout the United States. Statistics have shown that housing projects are increasing around 11 percent throughout 2017, but these numbers are expected to continue to increase as the overall population continues to grow. This is a major market for many timber, lumber, and wood companies. Working towards creating strong relationships with various construction business owners can open the door to more opportunities for lumber, timber, and wood companies.
- Exploring Sustainable Lumber Solutions Through Technology: As with every industry today, technology is transforming the antiquated systems typically associated with the timber, lumber, and wood sectors. Today, sustainability is key – and working to shift ideals and stigmas have about timber, lumber, and wood companies is vital to remaining competitive. While there are environmental effects that are linked to logging and wood industries, the reality is that there are not better alternatives or options. The timber, lumber, and wood sectors have become integral to our ways of living, especially in the United States. However, many timber, lumber, and wood business owners are trying their best to find alternative, more sustainable solutions for producing wood based products. One of the key ways that timber, lumber, and wood companies can differentiate themselves from the competition is through integrating better technologies – and there are plenty on the market today – that can allow timber, lumber, and wood businesses to grow more and produce more, all while using much less wood. As mentioned above, many leaders in these industries are making sure to remain sustainable by utilizing every piece of wood and it’s remnants, but more can be done through technological advancement.
Types of Lumber & Wood Industry Loans and Working Capital
When it comes to debt financing options available to lumber and wood companies seeking loans, lines of credit and equipment financing the options are plentiful. Add in the alternative working capital financing solutions, and the options multiply. But doing your research to make sure you get the proper financing product for your company should save you a ton of money if done right. Below we’ll take a look at some of the options available to help capitalize your lumber and wood company.
Bank Loans
Lumber companies tend to seek conventional bank loans first because traditional business lenders offer the best rates. Conventional lenders offer lumber companies with multiple types of lending facilities, including term loans, lines of credit, equipment financing and business real estate.
| Rates | 5-10% |
|---|---|
| Terms | 1-30 years |
| Funding Amounts | $50,000-$50,000,000 |
| Collateral | Required |
| Fees | Medium costs |
SBA Loans
Loans offered using the Small Business Administration’s loan enhancement program are a great way for lumber companies to get affordable and quality financing. Lumber company SBA loans come as both term loans and lines of credit, with uses ranging from business acquisition, commercial property purchase or refinancing, debt consolidation, working capital and other general business uses.
| Rates | 5-8% |
|---|---|
| Terms | 1-25 years |
| Funding Amounts | $50,000-$5,000,000 |
| Collateral | Required |
| Fees | Medium costs |
Lines of Credit
A line of credit is simply a way for a lumber company to access capital that they have been preapproved for, which is readily-available for the small business to use whenever they need it. A line of credit may be secured against business assets (such as accounts receivable and commercial real estate) while an unsecured loan usually relies solely on the business cash-flow as well as the business and business owner’s credit.
| Rates | 7-20% |
|---|---|
| Terms | 1-2 years |
| Funding Amounts | $10,000-$5,000,000 |
| Collateral | Required |
| Fees | Medium costs |
Equipment Leasing
Choosing to lease business equipment is an alternative way for a lumber or wood company to obtain financing without having to pay the full price of the equipment upfront. Leasing equipment only requires a business to pay roughly 10% of the equipment’s price upfront, and doesn’t leave the lumber company with outdated equipment.
| Rates | 7-15% |
|---|---|
| Terms | 1-10 years |
| Funding Amounts | $10,000-$5,000,000 |
| Collateral | Required |
| Fees | Medium costs |
Factoring
Lumber company factoring involves selling a company’s accounts receivable to a third party in exchange for the factoring company forwarding a portion of the invoice’s value. Factoring can be done by selling only a single invoice of the lumber company, or selling all the invoices.
| Rates | 1-10% monthly |
|---|---|
| Terms | 1-2 years |
| Funding Amounts | $100,000-$5,000,000 |
| Collateral | Required |
| Fees | Medium costs |
Cash Advance
A merchant cash advance is similar to factoring in that the lumber and wood company is selling future revenue at a discount. The difference is that a merchant cash advance involves selling receivables using the business bank accounts activity, rather than invoices.
| Factor rates | 1.10 – 1.50 |
|---|---|
| Terms | 3-24 months |
| Funding Amounts | $5,000-$2,000,000 |
| Collateral | Not required |
| Fees | High costs |
Summary
As a lumber company operator, we understand that your days and long and very busy. Researching a business loan may require many hours of work, and even then you may not walk away with the best advice. If you are a lumber company owner seeking funding for your company and need help with the process, please reach out to one of our funding specialist, and we’ll help you get the right loan for your wood company.
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