Toolbook for Financing Energy Efficiency and Pollution Prevention

To view this page ensure that Adobe Flash Player version 9.0.124 or greater is installed.

Please login or register to make a comment!

...Description...... more. less.

Types of Financing Should Manufacturers Consider? ..............................11 Conventional Lenders and Risk: What Influences Their Approach to Manufacturing Projects? ................................................................................... 17 Choosing the Right Lender: Size May Matter .................................................. 21 Other Factors Affecting Lender 9s Willingness to Lend on Manufacturing Projects ............................................... 22 Total Cost Assessment...................................................................................... 23 Case Studies A. Finkl & Sons Co........................................................................................... 29 AAP Saint Mary's.............................................................................................. 33 Decatur Foundry, Inc. ....................................................................................... 35 Quad/Graphics, Inc. .......................................................................................... 39 Ponderay Newsprint Company ......................................................................... 45 Nisshinbo, California, Inc. - Energy Capital Partners ....................................... 47 Wacker Siltronic................................................................................................ 49 Top Veneer & Trading Co., Ltd. - Heller First Capital ..................................... 51 Trailblazer Foods, Inc. - The Money Store & Key Bank.................................. 53 Naumes, Inc. - PacifiCorp................................................................................. 57 U.S. Bancorp Leasing and Financial ................................................................. 59 B & G Machine, Inc. - Cascadia Revolving Fund............................................. 61 ii Table of Contents Federal Financing Assistance Programs: What 9s Available to Manufacturers? United States Department of Energy (DOE) Office of Energy Efficiency and Renewable Energy.......................................... 65 Industries of the Future Initiative...................................................................... 67 Climate Wise ..................................................................................................... 69 Industrial Assessment Centers (IACs) .............................................................. 71 Description ................................................................................................. 71 Qualifications ............................................................................................. 71 Impact ......................................................................................................... 72 Application Process .................................................................................... 72 Industrial Assessment Centers.................................................................... 73 Industrial Assessment Center Locations..................................................... 76 Inventions and Innovation Program.................................................................. 77 Energy Related Inventions Program (ERIP) .............................................. 77 Innovative Concepts Program (InnCon)..................................................... 78 National Innovation Workshops.................................................................. 79 Motor Challenge ............................................................................................... 81 Description ................................................................................................. 81 Qualifications ............................................................................................. 82 Motor Challenge at Work: Peabody Holding............................................. 82 Motor Challenge Partnership..................................................................... 82 Motor Challenge Allied Partnership .......................................................... 82 Excellence Partnership............................................................................... 83 MotorMaster+ Software ............................................................................. 83 National Industrial Competitiveness Through Energy, Environment, and Economics (NICE 3 ).................................................................................... 93 1998 Solicitation Timeline.......................................................................... 94 The Award ................................................................................................... 95 NICE 3 Active State Participants ................................................................. 95 DOE National Laboratory Resources ............................................................. 101 Services ..................................................................................................... 101 Department of Energy National Laboratory Contacts ............................. 103 Manufacturing Extension Partnership (MEP)................................................. 105 Manufacturing Extension Partnership Office Locations.......................... 106 Manufacturing Extension Center Directory ............................................. 107 Table of Contents iii National Technology Transfer Network.......................................................... 109 The National Technology Transfer Network (NTTN)................................ 109 The National Technology Transfer Center (NTTC) .................................. 109 Regional Technology Transfer Centers (RTTC) ........................................ 110 Small Business Development Centers ..............................................................111 SBA 7(a) Loan Programs ................................................................................113 SBA 7(a) Loan Guarantee Program Overview.......................................... 113 Eligibility ................................................................................................... 113 Fees and Interest........................................................................................ 114 Interest Rates ............................................................................................. 115 Specialized 7(a) Loan Programs ............................................................... 115 Directory of Certified and Preferred Banks by State................................. 118 Small Business Investment Companies ........................................................... 121 Small Business Investment Company Program ........................................ 121 Specialized Small Business Investment Companies (SSBICs).................. 122 ACE-Net.................................................................................................... 122 Certified Development Company Guaranteed Loans (Section 504)............... 131 State Programs Illinois Financial Assistance Programs for Manufacturers .............................. 133 Participation Loan Program .................................................................... 133 Development Corporation Participation Loan Program ......................... 133 Capital Access Program (CAP)................................................................ 134 Industrial Revenue Bonds......................................................................... 134 Title IX Revolving Loan Program............................................................. 135 Direct Loan Program................................................................................ 135 Export Financing...................................................................................... 136 Enterprise Zones....................................................................................... 137 Illinois Technical Assistance Programs for Manufacturers ............................. 139 First-Stop Business Information Center of Illinois .................................. 139 Illinois Small Business Environmental Assistance Program .................... 139 Business Expansion, Retention and Location Assistance......................... 140 Technology and Modernization Initiatives (COMPETE) ......................... 140 iv Table of Contents Indiana Financial Assistance Programs for Manufacturers ............................. 143 Indiana Community Business Credit Corporation (ICBCC) .................... 143 Capital Access Program (CAP)................................................................ 143 Industrial Energy Efficiency (Loan) Fund ............................................... 144 Industrial Energy Efficiency (Grant) Program ........................................ 144 Product Development/Commercialization Funding ................................. 145 Economic Development for a Growing Economy (EDGE) ...................... 145 Loan Guaranty Programs......................................................................... 146 Alternative Energy Systems Program ....................................................... 146 Enterprise Development Fund (EDF) and Indiana Microloan Program..................................................................... 147 Certified Development Companies (CDC) ............................................... 148 Tax-Exempt Bonds .................................................................................... 148 Training 2000 Program ............................................................................ 149 Small Business Innovation Research (SBIR) Bridge Funding.................. 149 Trade Finance Program............................................................................ 150 Recycling Promotion and Assistance Fund .............................................. 150 Trade Show Assistance Program (TSAP).................................................. 151 Indiana Technical Assistance Programs for Manufacturers ............................ 152 Energy Policy Division Services............................................................... 152 The Indiana Quality Initiative (IQI)......................................................... 152 Regional Manufacturing Extension Center (RMEC) ............................... 153 Indiana Micro-Electronics Center............................................................ 153 Business Modernization Tools .................................................................. 154 Benchmarking Information and Financial Analysis Report (BI-FAR)..... 154 Cinergy (Indiana) ..................................................................................... 155 International Trade Services .................................................................... 155 Small Business Development Center Network (SBDC) ............................ 156 Iowa Financial Assistance Programs for Manufacturers................................. 157 Alternate Energy Revolving Loan Program ............................................. 157 Targeted Small Business Financial Assistance Program (TSBFAP) ........ 158 Iowa New Jobs and Income Program (NJIP) ........................................... 159 Iowa Capital Corporation (ICC) .............................................................. 159 Iowa Seed Capital Program...................................................................... 160 Entrepreneurs With Disabilities (EWDI) .................................................. 160 Pollution Control Property Tax Exemption .............................................. 161 Iowa Economic Development Loan Program........................................... 161 Table of Contents v Focused Small Business Loan Program ................................................... 161 Export Trade Assistance Program (ETAP)............................................... 162 Iowa New Jobs Training Program/Financing........................................... 163 Iowa Technical Assistance Programs for Manufacturers................................ 164 The Iowa Energy Center ........................................................................... 164 Professional Site Location/Expansion Services, Resources and Confidential Consultation for Growing Companies................................. 164 Regulatory Assistance Program ............................................................... 165 Iowa Procurement Outreach Center (IPOC) ............................................ 165 Center for Industrial Research and Service (CIRAS)............................... 166 Iowa Manufacturers Technology Center (MTC)....................................... 166 Michigan Financial Assistance Programs for Manufacturers .......................... 167 Tax-Free Renaissance Zones .................................................................... 167 Business and Industrial Development Corporations (BIDCOs) .............. 168 Capital Access Program (CAP)................................................................ 170 Michigan Technical Assistance Programs for Manufacturers ......................... 171 Industrial Technology Institute (ITI) ........................................................ 171 Michigan Manufacturing Technology Center (MMTC) ........................... 172 Performance Benchmarking Service ........................................................ 172 Pathway Partners, Ltd. ............................................................................. 173 ITI Energy and Environmental Center ..................................................... 174 Michigan Small Business Development Centers ...................................... 174 International & National Business Development ..................................... 176 Minnesota Financial Assistance Programs for Manufacturers ........................ 177 Capital Access Program (CAP)................................................................ 177 Enterprise Zone Program ......................................................................... 177 Urban Challenge Grant Program............................................................. 178 Small Business Development Loan Program............................................ 178 Working Capital Loan Guarantee Program ............................................. 179 Minnesota Investment Fund...................................................................... 179 Minnesota Technical Assistance Programs for Manufacturers ....................... 180 Small Business Development Centers....................................................... 180 Business Development and Site Selection Services .................................. 182 Minnesota Trade Office Services.............................................................. 183 Computer and Electrical Components Industry Services......................... 183 Forest Products Industry Services ............................................................ 184 vi Table of Contents Missouri Financial Assistance Programs for Manufacturers ........................... 185 Missouri Department of Economic Development Finance Program ....... 185 Capital Access Loans (CAP) .................................................................... 186 Environmental Improvement and Energy Resources Authority Market Development Program ................................................................. 186 Mobucks for More Jobs Program ............................................................. 187 Industrial Development Bonds ................................................................. 188 The Loan Guarantee Program.................................................................. 189 Enterprise Zones....................................................................................... 189 Industrial Machinery Equipment and Materials Tax Exemptions............ 191 Missouri Technical Assistance Programs for Manufacturers .......................... 192 Missouri Technology Corporation 9s Innovation Centers.......................... 192 Center for Advanced Technology at the University of Missouri/Rolla..... 192 Missouri Business Assistance Center (MBAC)......................................... 193 Missouri Office of Business Information.................................................. 193 Missouri International Trade and Development Office ........................... 193 Ohio Financial Assistance Programs for Manufacturers ................................. 195 Ohio Enterprise Zone Program ................................................................ 195 Linked Deposit Program........................................................................... 196 Mini-Loan Guarantee Program................................................................ 196 166 Direct Loan Program......................................................................... 197 Pollution Prevention Loan Program......................................................... 198 Scrap Tire Loan and Grant Program........................................................ 198 Technology Investment Tax Credit Program............................................. 199 Ohio Job Creation Tax Credit................................................................... 199 Ohio Manufacturers Investment Tax Credit.............................................. 200 Manufacturing Machinery and Equipment Investment Tax Credit .......... 201 Brownfield Site Cleanup Tax Incentives ................................................... 201 Research and Development Tax Credit..................................................... 202 Ohio Export Tax Credit............................................................................. 202 The Integrated Manufacturing Assessment Loan Program...................... 203 Ohio Technical Assistance Programs for Manufacturers ................................ 204 Small Business Development Center (SBDC) Program ........................... 204 One-Stop Business Permit Center ............................................................ 204 Edison Technology Centers ...................................................................... 205 Cleveland Advanced Manufacturing Program (CAMP) .......................... 206 Table of Contents vii Cinergy (Greater Cincinnati).................................................................... 207 Institute of Advanced Manufacturing Sciences, Inc. (IAMS) ................... 208 Wisconsin Financial Assistance Programs for Manufacturers......................... 209 Development Zone Program..................................................................... 209 Enterprise Development Zone Program .................................................... 211 Industrial Revenue Bonds......................................................................... 212 Major Economic Development Program (MED) ..................................... 212 Rural Economic Development Program................................................... 213 Capital Access Program (CAP) ................................................................ 213 Northwest Wisconsin Business Development Fund .................................. 213 Rural Development Loan Funds ............................................................... 214 Renewable Energy Assistance Program ................................................... 214 Business Development Bond Program ..................................................... 215 Wisconsin Business Development (WBD) Loan Program ........................ 215 Other Financial Resources Available to Wisconsin Businesses ............... 216 Wisconsin Technical Assistance Programs for Manufacturers........................ 217 Area Development Manager Program...................................................... 217 Wisconsin Energy Bureau ......................................................................... 218 Small Business Clean Air Assistance Program ........................................ 218 SBIR Proposal Review Service ................................................................. 219 Small Business Ombudsman..................................................................... 219 Small Business Development Centers (SBDC)......................................... 220 Other Technical Assistance Programs...................................................... 220 International Development Programs ...................................................... 221 Sponsors Argonne National Laboratory......................................................................... 223 CANDO .......................................................................................................... 224 The Congressional Task Force on Manufacturing .......................................... 225 Commonwealth Edison Company................................................................... 226 Council of Great Lakes Industries .................................................................. 228 East West Corporate Corridor Association .................................................... 230 The Energy Resource Center .......................................................................... 231 First Utility Finance......................................................................................... 232 viii Preface First Chicago NBD Corporation..................................................................... 234 LaSalle National Bank .................................................................................... 235 NICOR/Northern Illinois Gas ......................................................................... 236 NORBIC, North Business & Industrial Council ............................................. 237 Northeast-Midwest Institute ........................................................................... 238 Peoples Energy Corporation........................................................................... 239 Valley Industrial Association........................................................................... 240 The Office of Energy Efficiency, Community Development Division, Ohio Department of Development.................................................................. 241 The Financing Technology Toolbook and the E2/Finance software have been paid for with U.S. Government funding under cooperate agreement DE-AC36-96GO10149 and related subordinate contracts. The computer software and associated materials have been copyrighted by Tellus Institute (all rights are reserved), but the software distribution and use are covered by a Government license. Neither the U.S. Government nor any agency thereof, nor any of their employees, makes any warranty (including warranty of merchantability or fitness for a particular purpose), express or implied, for direct, indirect, incidental, or consequential damages or lost profits, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of any information, apparatus, product or process disclosed, or any product or process resulting from use of the Toolbook and computer software, or represents that their use would not infringe privately owned intellectual property rights. More particularly, there is not guarantee or warranty that the Toolbook, software, and associated materials will successfully: 1) help participants get a loan, or 2) produce savings for participants from pollution prevention measures or energy efficiency measures, or, 3) enable participants to repay any loans. Reference herein to any specific commercial product, process, or service by patent number, trade name, trademark, manufacturers, or otherwise, does not necessarily constitute or imply its endorsement, recommendation, or favoring by the U.S. Government or any agency thereof. The views and opinions of originators of the Toolbook and software expressed herein do not necessarily state or reflect those of the U.S. Government or any agency thereof. Preface ix Preface The Department of Energy 9s Office of Energy Efficiency and Renewable Energy is conducting Innovative Financing Workshops and sponsoring important tools such as this book for three reasons: " the potential for increasing the efficiency of energy use in manufacturing is enormous and largely untapped and directly impacts the bottom line; " manufacturing is a crucial part of the U.S. economy; and, " few conventional sources of financing focus on production process technologies. The Importance of Manufacturing Like an engine which drives a car, manufacturing drives the economy. At the National level, $1 in final sales of manufactured goods generates about $1.30 in activity in other sectors. By implication, the effect of $1 in Gross Domestic Product (GDP) in manufacturing is to generate $2.30 in total production. On average, each $1 million in final sales in manufacturing is associated with 13.6 jobs in manufacturing 4both the jobs to produce the final product and the intermediate products that go into it 4and 8.4 jobs in other sectors such as raw materials and services. Moreover, the manufacturing sector is responsible for the majority of research and development performed in the United States 4and by some estimates R&D is responsible for up to 50% of our economic growth. While manufacturers represent a vital component of the National economy, many U.S. companies falter in the increasingly competitive global marketplace. Crane Valve For example, Crane Valve of Washington, Iowa, a foundry and valve manufacturing facility built in the 1960s and employing 130 people received an energy audit from the local utility which indicated potential savings of $96,000. After continuing to audit and implement process improvements for energy efficiency, waste reduction, and other productivity improvements, Crane Valve was able to: " decrease kwh from 1,023 per ton to 727 per ton (a 29% reduction); " increase production from 32 tons to 72 tons (a 125% increase); and, " increase the number of employees by 24 while man hours per ton dropped from 13.5 to 5. These dramatic results were achieved by tuning and repairing equipment, training personnel, and improving the production process from the standpoint of quality control and reducing scrap rate from 16.1% to 5.8%. Crane Valve saved $300,00 annually, 25% from energy efficiency and 75% from production improvements and waste reduction. x Preface Often they lack the technical and financial resources available to companies in Japan and Europe. The Office of Technology Assessment in Making Things Better: Competing in Manufacturing argued that the United States must improve its manufacturing technology; not only by generating new products but by teaching how to use equipment, organizing work, and managing people who make the products. U.S. manufacturers are competing with many countries who provide their companies with low-cost, direct loans, as well as tens of billions in loan guarantees. In the United States the relationship is different. This workshop highlights the opportunities for partnering that can be critical to success in the global economy. Often U.S. manufacturing plants were built, run until they were unproductive, and then closed down. A new state-of-the-art plant may open in a new location. But the old plants stand empty and unused, creating what 9s known as cbrownfields d abandoned plants reminding cities of the old days. Fortunately, we have begun to understand the waste of resources inherent in this process. The staggering problems of brownfields and the sprawling greenfield development, purchasing farmland to build new manufacturing plants, attest to the associated costs. Just as companies have learned the cost advantage of recycling resources, innovators are investing in existing manufacturing plants to improve their efficiency, competitiveness, and life. Finding new enterprises to locate on abandoned plant sites presents real challenges; far better to prevent plant closures by retrofitting for efficiency. Success stories exist. Public/private partnerships in energy efficiency and pollution prevention can be effective. In Bowling Green, Ohio, the municipal utility, the Bowling Green Community Development Foundation, and the Ohio Department of Development 9s Office of Energy Efficiency conducted a pilot program with four participating factories (a foundry, a hydraulic cylinder manufacturer, a metal stamping plant, and a plastic parts manufacturer) that exceeded the expectations of all of the partners. With $48,000 from the Office of Energy Efficiency and $4,500 each from the utility and the foundation, an outside expert conducted assessments for the plants. As a result, in the first year the companies invested $60,000 in improvements which resulted in cost savings totaling $400,000 annually. The investments the companies made in the first year paid back in less than four months. Yet the project benefited all the partners. The State 9s contribution paid back in 5 days from expanded tax revenues, to the utility in 1.5 days from utility revenues, and 2 days from local tax revenues to the local government. These results are compelling and justify efforts to make capital more available to manufacturers. Preface xi Scarce Capital for Equipment Companies have a hard time finding capital to pay for equipment or technology for a variety of reasons: banks may be reluctant to lend money for technology they are unfamiliar with; lenders may be concerned about whether technologies will deliver the savings estimated; and many hesitate to allow the full value of equipment they do not understand for collateral. The uncertainty impedes the implementation of cost-effective efficiency improvements in two ways: good opportunities are missed because companies can 9t secure funding and companies may conclude that projects aren 9t good because they can 9t get capital to pursue them. Opportunities exist to link technical providers to lenders or other financiers in order to provide objective information on a project 9s impact on the companies 9 operation and maintenance costs. One purpose of this toolbook is to help facilitate this process. Similarly, technical providers can often provide examples of companies that have installed similar technologies that can provide proof of operational impacts to lenders who are unfamiliar with the equipment. Finally, providing the financial means to companies to undertake efficiency improvements makes sense from several perspectives. As the Bowling Green example illustrates, a company that invests in enhanced efficiency, invests in its present and future viability in the marketplace. The competitiveness of small and mid-sized manufacturing underpins the local economy, yet it is this segment of manufacturing that typically has the most trouble keeping up with the pace of technological change. It often has the fewest resources on which to draw. Why Energy Efficiency? The potential for improving energy efficiency in manufacturing is well documented. Both the Electric Power Research Institute (EPRI) and the Congressional Office of Technology Assessment (OTA) found that U.S. manufacturers, even energy-intensive factories, could reduce energy use substantially. OTA calculated that energy intensive industry could reduce energy use by 16 to 37% with existing technology. Case studies to date suggest that substantial improvements can be made without enormous investment in new equipment or technologies. In many plants, a process of continuous improvement can utilize the savings from low-cost improvements to encourage management to consider more costly projects once the benefits of the initial investments become apparent. Rather than viewing waste 4 whether wasted energy or resources 4as an inevitable by-product of manufacturing, waste should be viewed as a measure of plant inefficiency. Dramatic improvements in efficiency and productivity can result once employees and plant owners view their waste stream from the same cost-cutting perspective as has been afforded to cdownsizing, d crightsizing d and restructuring. Best viewed as a goal, energy efficiency improvement becomes a process rather than a single project. An effective industrial efficiency program strives for a commitment to improvement that involves plant employees as well as management. Technologies, markets, and opportunities for manufacturers constantly change. Effective companies build a commitment to continuous improvement within the manufacturing facility. Similarly, plant employees must be motivated to participate in the plant 9s energy efficiency goals. xii Preface The process of making products from materials and inputs requires energy to move, mold, heat, machine, clean, pack, and ship. Typically the largest energy savings come from changes in the production process. By evaluating the use of energy in a production line with an eye to improving efficiency, other benefits often become apparent--gains in productivity and/or reduction in the generation of waste. The Crane Valve company, provides a good example of this. Similarly, many new technologies are more energy efficient than older ones. Productivity Through Technology Because of their success in job creation and technological innovation, small manufacturers have become the vanguard of growth and competitiveness in the U.S. economy. Technical assistance programs, therefore, typically concentrate on helping smaller firms, usually those with fewer than 500 employees. Many Federal and State technical assistance resources are available to manufacturers, but manufacturers need to realize that they have different goals (i.e., technology innovation, product development, or technology diffusion); different sectorial targets; and different quirks in terms of the nature and extent of assistance, as well as its cost. When considering whether or not to use a public program as a technical or technology assistance partner, manufacturers need to remember the general philosophy behind all of these public-sector efforts. Small enterprises have enormous potential to stimulate economic growth, but they also have the greatest need for technical or management advice or links to financial support. The impetus for action rests with the private sector, and manufacturers themselves need to commit to invest in improving production processes and adapting more modern technologies. Yet within this framework of private-sector action and market forces, the public sector can play an important technical information, liaison, or brokering role, enhancing private decisions with public-sector support. A driving force behind many Federal and State efforts is bringing existing technologies to established companies that have not considered them before and this includes deployment of technologies useful to manufacturers that can help with production improvements, as well as those that can lead to operational or energy consumption efficiencies. This type of technology deployment can make these enterprises operate more efficiently, without compromising proprietary information or other company csecrets. d It also can help them establish new product lines, which can be especially important in areas where the manufacturing base is eroding and traditional producers are looking for new growth opportunities. The toolbook provides information on several different technical assistance programs. Despite their diversity, manufacturers should be aware that they address one or more of the following four goals: Preface xiii Developing new technologies and products . Many research institutions, such as Federal labs, have long traditions of research, but promoting the ccommercial applicability d of those research results is a new arena for them. To encourage these institutions to promote new technologies and products, two types of technology transfer strategies typically are pursued: (1) using existing advanced technologies in new ways; and (2) supporting research to develop new technologies and help bring them to market. What this means, in practice, is that manufacturers have a window of opportunity to identify and explore a wealth of information on and opportunities for innovations that could prove quite profitable if commercialized. In the case of small and mid-sized companies, this opportunity would not be available any other way, because of cost and technical concerns. These institutions are interested in forging new partnerships, but many are still developing their approaches to these partnerships. Therefore, manufacturers may want to take the first step, contacting these organizations, explaining their need, and working with them to identify possible joint activities. Federal agencies and local officials are encouraging such partnerships in order to enhance manufacturing activity, spin-off entrepreneurial enterprises, create and retain jobs, and increase tax revenues. Bringing more modern technologies, processes, and efficiencies to existing industries. In several areas, notably the industrial Midwest, public-sector technology initiatives have helped existing industrial operations attract new investment capital for modernization projects. These ctechnology deployment d efforts are dispelling the myth that technology innovations and traditional manufacturing operations do not fit together. Federally- supported programs are credited with developing key breakthroughs in a wide range of industrial sectors, in areas such as CAD/CAM, ceramics, and welding. These breakthroughs have improved productivity in heavy industry. State programs have tallied similar achievements. Most of these efforts are aimed at helping small and mid-sized operators, unable to explore these areas on their own, adopt new and existing technologies. Helping new and small manufacturers access the technology they need to compete. If public program experts or other technical service providers can help these firms adapt newer, more productive technologies, their ability to sustain markets and retain jobs will be strengthened, and they can continue to play an important role in community economies. Many of these companies have been founded and operated by entrepreneurs who have good ideas about what will work or sell in their area. Often, however, these entrepreneurs do not have access to the technical facilities, information, and similar resources necessary to develop, produce, and market the next generation of products or services for their traditional customer niches. A key role of technical assistance programs is to help such companies better understand how they can use technology to ensure that their products remain competitive in the eyes of customers locally and in the global marketplace. In addition, these programs allow small companies to gain access to information and facilities that only large companies can usually afford. xiv Preface Easing the expansion process for firms already established, or prevent plant closings. In many cases, technical assistance programs can help firms that successfully have overcome start-up hurdles prepare to expand. Manufacturers have welcomed such programs as a reliable, neutral source of information for plant owners or managers facing critical decisions about modernization or diversification. In other situations, technical assistance programs can serve as an information lifeline for troubled manufacturers, helping them overcome identified difficulties and anticipate their needs. When long-time shop owners finally confront issues such as erosion of their customer base and obsolete production processes, they often have no place to turn for help. Given their broad web of contacts, program staff may be able to help these manufacturers develop new products and seek new markets, as well as work with creditors and suppliers to help ease the company 9s transition and buy it some breathing room. Technology transfer typically surfaces as a major barrier for these companies; manufacturers can use Federal and State programs to play an important role by linking the firms to the expertise and resources they need to surmount this barrier. Depending on the program, technology development and transfer programs participate in or coordinate a series of activities in which research with commercial potential is refined and brought to market. Publicly supported programs and research and technology centers take several forms: " research and development efforts in one industry, such as chemicals; " comprehensive resource centers that link scientific and service networks; and " one-stop advanced centers offering prototype development and servicing a variety of business types and sizes. Federal technology programs, and many State initiatives, address manufacturing technical assistance needs in various ways. Some programs put formal networks in place; others arrange for small operations to share facilities and equipment with larger producers; still others encourage resource entities, such as universities, to seek out and work with prospective beneficiaries. Other programs focus on commercialization, a key part of a successful technology transfer initiative. Successful technology development and transfer programs targeted to product development can use public-sector intervention at two stages: (1) during the early steps to stimulate research on new technologies; and (2) with subsequent efforts to promote their commercial application. In addition, rather than concentrate solely on chigh d technology, many programs have broadened their scope to focus on cadvanced d technology. In the case of technology deployment initiatives, program staff will work with existing manufacturers, regardless of sector, in applying proven technological techniques to upgrade and modernize a production process, or introduce greater efficiencies into the operation. Preface xv Good technical assistance can improve business efficiency and profitability. For the many small manufacturers 4machine shops, foundries, and metal workers, for example 4that are owner-operated and have small profit margins, savings of as little as a few thousand dollars can have big impacts. Public program officials can improve the economic climate for these firms by serving as a conduit to needed assistance services. In fact, many of the most successful programs are those skilled in obtaining good, affordable technical assistance quickly. This toolbook will help bridge these gaps between manufacturing and efficiency by encouraging a wide variety of people to focus on the potential that exists to improve the energy efficiency of manufacturing: " underscoring the numerous benefits that would accompany such an approach to manufacturers, financiers, and policy makers; " helping manufacturers work in the financial community to find the capital and other resources needed to implement production efficiencies; " helping manufacturers better understand lenders 9 views of risk; " helping financiers better understand the impact of efficiency investments on the bottom line in manufacturing; and, " providing the resources available to reduce the perceived risk inherent in such loans. Background 1 Background 4Why a Toolbook and What Types of Information Does it Offer? Manufacturers face a number of barriers as they seek to modernize and remain competitive and they often feel isolated in their quest for the support they need to address these hurdles. However, they are not alone in their search for financing and technical assistance. Many companies, in numerous sectors, and in all types of situations have overcome them. This toolbook intends to build on these successes and provide a range of information that can help manufacturers address these problems. What Is Really Out There? A multitude of private financing sources are out there, ranging from traditional banks to energy service companies (ESCOs) to venture capital cangels d 4 wealthy individuals looking for an innovative way to invest. However, manufacturers typically have little contact with such sources, and may not even be aware of them. Billions of dollars worth of Federal and State financing resources are also available through a number of programs 4 but manufacturers must get a sense which are most appropriate and gain an understanding of how these programs work. They must also be able to show that their needs coincide with program missions and that their needed projects can be shaped to meet program eligibility requirements and award criteria. Not all manufacturers will need, or be interested in, all of the information offered in this toolbook. This reflects their diversity as well as the different barriers they face. The following description of the sections is intended to help direct readers to those sections that will be of greatest use to them. What Will This Toolbook Do For Manufacturers? This toolbook is designed to help manufacturers work through key issues and alternatives relating to financing manufacturing modernization. Some manufacturers may choose to read the entire document, to get a full flavor of the barriers to and opportunities for financing efficiency and other improvements. Others will want to concentrate on different types of available assistance, such as loan guarantees or equity capital, in order to learn what resources could best fit their needs. Still others will want to use the toolbook to gain a firmer grasp of the rationales behind certain lender decisions, or to decide which private financier may be best suited to their situation. In any situation, the toolbook can help manufacturers advance their efforts to become more efficient and more competitive. Manufacturing matters! 2 Background What Is In the Toolbook? The Toolbook is divided into the following six sections: Section One The Background section sets the stage for financing manufacturing projects and provides an overview of public and private financing resources and private lender concerns. It explains the types of financing manufacturers need at various stages in their evolution and types of public-sector tools suitable for manufacturers 4debt, equity, tax incentives, and grants 4 and key factors affecting the use of each. Section Two Financing Options, Techniques, and Strategies describes the types of financing for manufacturers to consider and lists the various methods manufacturers can turn to for financing help including: " Federal or State assistance; " commercial loans; " lease-purchase or vendor financing programs; " energy services or shared savings contracts; " utility rebates or incentives; " company cash flow; and " equity financing. Section Three The third section provides case studies which show the modernization process from the assessment stage to the financing stage. The specific technology upgrades are discussed and their costs, payback, and energy savings are shown. Background 3 Section Four The fourth section focuses on more than a dozen Federal financial and technical assistance programs, focusing on key offerings of the Department of Energy 9s Office of Industrial Technologies and the Small Business Administration which manufacturers have found to be effective. These are profiled in detail and include " program objectives or mission; " the services they offer and what they cost; " who 9s eligible and how to apply; " conditions and considerations 4how the programs work in practice; " pertinent program data (such as top participating lenders or level of energy savings achieved); and " regional and headquarters program contacts for more information. Section Five The fifth section is a State-by-State look at financing and technical assistance programs best suited to meet the needs of manufacturers within this region. Programs are briefly profiled and a contact given. Section Six The last section consists of information provided by participating organizations describing their operations and the types of financial or technical services they provide to advance manufacturing modernization and efficiency initiatives within this region. Participating organizations include " private lenders; " financial service providers; " utilities; " nonprofit development organizations; " State and local agencies; " Federal agencies. 4 Background What Are Some of the Financing Issues Manufacturers Face? Adequate amounts of investment capital at affordable terms are necessary if manufacturers are to modernize and compete. Plenty of capital is available nationally, but many manufacturers have trouble gaining access to the money they need at affordable rates. This is especially true for small producers who often have great difficulty in securing financing. Many cannot obtain capital either for long-term investments in plant and equipment or short-term funds for materials to build inventory. In addition, the normal problems associated with underwriting reviews of loan applications are complicated by several factors, including: " lender uncertainty about the viability of proposed production process-related changes; " lender adversity to operations involving new technologies that the bank has had little experience evaluating; and, " the environmental uncertainties that many lenders associate with manufacturing projects (in terms of lender liability and collateral devaluation). Why Do Lenders Operate This Way? Financing institutions typically limit their lending to low-risk propositions, so manufacturers may have more success in the money markets if they understand the reasons why lenders operate the way they do. One of the most important reasons is lenders 9 concerns over how their own regulators will view the viability of their bank operations and lending practices. The Federal Office of the Comptroller of the Currency and other bank regulators have laid down specific loan performance criteria for lenders to meet, and no financial institution wants the stigma of too many bad or cnonperforming d loans. In practice, this means that lenders are most comfortable with certainty, with things they know, and processes they understand. As a result, many often view innovations or new technologies as situations to be avoided in favor of other types of lending. Many small manufacturers, in fact, are not able to land long-term capital or construction loans at any price; they are viewed as too risky. Their owners often lack enough collateral to meet underwriting requirements or enough cash to meet loan processing costs and environmental assessment requirements. While product development initiatives, new technologies, and efficiency improvements receive a lot of attention from public and corporate leaders, they often are viewed skeptically by bank underwriters, who may finance only a fraction of the project's value 4if they offer any capital at all. Innovative projects without a record of success and certainty often do not compete well in financial markets because lenders, looking to their own bottom line, are not sufficiently convinced that they will be repaid. Background 5 Individual institutions determine their own lending procedures to avoid this stigma, and these procedures vary. Some lenders have developed a speciality and an in-house expertise in certain types of lending, such as manufacturing equipment and facilities. Because they understand the needs, the practical risks, and true nature of collateral value in such circumstances, they are likely to be much more receptive to a loan request from an industrial company than a financier that focuses on shopping centers or commercial businesses. What Kinds of Financing Do Manufacturers Need? Manufacturers face different types of financing needs as they go through various business cycles and as their companies evolve. Manufacturers need to recognize these variations, so they can devise the right approach for seeking financing, pick the right lender to approach for assistance, and make their best case to loan reviewers . No matter what type of operation or its location, manufacturers must secure several types of credit to do business. " Short-term loans , made for less than one year, cover immediate production costs; such loans are available only if the business can generate the cash flow to redeem them during the same period. " Working-capital loans purchase raw materials or help a company operate after sales are made but before payments are received; they are absolutely essential for most small and medium-sized manufacturers, which typically lack a cash-flow cushion. (ESCOs and performance contracting can meet this type of need.) " Equity investment , venture capital-type funding, makes available the block of capital needed for major capital projects such as new product development; venture investors typically take a portion of the company in return for their investment, usually in the form of stock. " Long-term loans purchase capital equipment, and construct or rehabilitate production facilities; generally they are repaid in installments over a period pegged to the life of the assets. " Lines of credit are loans that banks make available up to a prearranged level for a short time (usually 90 days); usually secured by accounts receivable, lines of credit help overcome cash shortages resulting from the normal delays when customers process invoices and send payments. Finally, manufacturers that produce for foreign customers will have to be able to secure letters of credit. These are, in essence, a type of commercial loan used to finance international transactions involving the shipment of merchandise. 6 Background How Can the Public-Sector Help? What do State programs do, and how can they help manufacturers gain access to needed financing? Several Federal agencies and nearly all States have devised financing tools to help manufacturers gain access to the money they need for efficiency and production process improvements. Some of these tools are relatively simple, like loan or grant programs; others are quite sophisticated, such as equity investment initiatives. The structure of these tools vary; some offer direct financial assistance while others provide indirect incentives via the tax code. Manufacturing needs are as diverse as the industrial sectors they represent. Therefore, no one cbest d public sector financing approach will fit all modernization and energy efficiency needs. As indicated below and in Section 4, the options are many. Manufacturers need to remember that while their common mission is linking companies to necessary resources, their goals and strategies will differ, and this may affect the choice of tools. Public programs are designed to meet one or more of the following goals to help make projects work, including: " Reducing the lender 9s risk, making capital more available by providing incentives such as loan guarantees to attract private lender participation; " Reducing the borrower 9s cost of financing, for example, by making capital more affordable with reduced interest rates or by using assistance programs that reduce loan underwriting and documentation costs; " Improving the financial situation of the manufacturer seeking financing, by providing incentives such as tax credits or abatements that can help improve the project 9s cash flow; and " Providing greater comfort to lenders or investors, through technical assistance information or programs that show that planned improvements will yield the benefits they claim. Manufacturers need to know where to look for help. At the Federal level, some financing tools are administered directly by Federal agencies; others by authorized private development companies or similar organizations; still others by local development agencies or nonprofit institutions or corporations, in accordance with Federal rules and in conjunction with Federal agency partners. Similar variations are found in State programs. Background 7 Types of Financial Assistance The financing tools available to manufacturers take many forms, but four types predominate: debt, equity, tax incentives, and grants. Different tools are best suited to different needs, and manufacturers need to understand these variations in order to come up with the best fit with their financing needs . Debt 3Loans, Loan Guarantees, and Other Tools. Most public assistance to manufacturers seeks to make financial resources more available to businesses through loans, loan guarantees, and various types of interest subsidies. Manufacturers should recognize that the general goal of all these programs is this: to make loan capital more available at the best rates and terms possible. At the same time, manufacturers need to understand the context in which all these programs operate, namely, that they are usually available to all qualifying businesses, no matter what sector of the economy. Most programs only limit company participation on the basis of size (usually, number of employees or annual sales). The Small Business Administration (SBA) is the leading Federal agency in this arena; many States have similar programs in place as well. These programs either subsidize the cost of capital or help ensure its availability. Typically, rates of interest are at or below prevailing market rates, depending on the program 9s objectives and constituency. These debt programs often are used to help attract capital for expansion projects or general business operation. They also seek to support promising firms that private lenders view as high risk, as well as otherwise solid companies unable to meet standard commercial lending terms. Depending on the specifics of any given program (i.e., what 9s eligible for assistance, private match required, etc.) manufacturers can use them for a variety of business capital needs 4 financing building construction, acquiring equipment and machinery, funding plant expansions, or supporting export activity. Some programs meet a company 9s need for working capital, chronically in short supply for smaller manufacturers. In recent years, SBA loan guarantees have helped a number of manufacturers who needed capital to incorporate new technologies or make important efficiency improvements. Debt programs are designed to improve the availability and affordability of capital. Manufacturers need to realize, though, that most public program officials follow their own guidelines to minimize risk, and these may be rigid as well . They are accountable to State or Federal agency oversight, and are just as concerned about business failure as their private-sector counterparts. Therefore, to the extent, they can, manufacturers need to shape their requests for financial assistance to meet the requirements of the program being considered . As a result, capital access remains a problem for many new or small operations, despite considerable State and Federal attempts to improve it. 8 Background Although debt financing is the primary Federal financing approach, and well suited to many situations, manufacturers need to realize that debt programs will not work in every case . Loans and loan guarantees may not fit with the financial needs of various new or expanding business situations, modernization or efficiency improvements, or of manufacturers engaged in technology-related projects. Many such firms, while economically sound overall, have initial cash-flow difficulties, and debt programs require a constant stream of repayments beginning almost immediately. Manufacturers trying to modernize or diversify often must borrow considerable sums to invest in production facilities and equipment. As small manufacturers are only too well aware, many small firms fail 4not from lack of demand for their products or services 4but because they cannot meet debt installments. The time lag on accounts receivable, for instance, can cause an insurmountable cash-flow barrier for small businesses. Equity. Equity-finance programs can address concerns over cash flow, because they do not feature a strict repayment schedule. Equity programs make capital more available through direct investment (and a potential return based on the success of the company), rather than by lump-sum loan proceeds (which must be repaid in installments). They promote development by investing funds in capital-poor but otherwise competitive enterprises, many of which are technologically innovative. Equity programs on a significant scale are a relatively new public-sector financial assistance phenomenon. A few States have explored venture capital-style assistance programs. At the Federal level, only SBA 9s Small Business Investment Company (SBIC) operates as an equity assistance program. In terms of equity programs, manufacturers need to realize that, in practice, SBA and similar State programs makes equity investments much like a private equity investor or venture capitalist . SBA and its program partners 4licensed Small Business Investment Companies (SBICs) are looking for deals that work. Investors, (in the case of SBA programs, through the SBICs), take an ownership interest in a company in exchange for funds. Equity is a riskier channel of investment than debt. If there are no profits or the business folds, the investor makes nothing or even loses its money. On the other hand, if the company does well, the investor (private, State or SBIC) can reap a substantial return. Equity programs operate more like a stock purchase than a debt investment, structured to give a company relief from redeeming its obligation until a certain level of return is reached. In contrast to debt financing, equity usually is more cpatient d money. Because returns are a function of profit, and profit is linked to the company 9s success, they are not expected immediately. The timing and size of payments are geared to the company 9s financial condition, thus removing early cash-flow pressures and giving the firm time to use its cash to advance restructuring or modernization efforts. At the same time, though, investors usually expect a greater return on an equity investment than traditional lenders do from loans. Background 9 Tax Incentives. The only significant Federal tax incentives specifically targeted to manufacturers are tax-exempt industrial development bonds (IDBs) which can be used for a variety of financial needs including site preparation and equipment acquisition. IDBs are available in every State, and each State sets its own eligibility conditions and authorizes its own set of issuing entities; typically, they include State agencies, local governments, development authorities, and similar organizations. State and local governments offer most of the tax incentives to promote manufacturing activity, including abatements, investment incentives, exemptions or moratoriums for capital improvements, and incentives for job creation. State and local tax incentives often are linked to or packaged with Federal financing assistance. They are offered on the premise that reducing taxes lowers the cost of doing business in an area, making it more attractive for companies to locate there or to maintain or expand existing operations. The latter rationale often is cited when long-time manufacturing companies seek help to retool. Thus, manufacturers can make a stronger case for State and local tax relief or tax-code linked assistance by showing the community impact and local benefits of their proposed project.

less