SMALL BUSINESS: Capital Access Program provides collateral support for Michigan Custom Machines

A leading designer and builder of advanced test machines, Michigan Custom Machines, of Novi, received a critical line of credit made possible in part by a pledge of security from the Michigan Strategic Fund (MSF).

Many businesses face a dilemma at the heart of remaining competitive: how to fill a customer order while awaiting payment for the work. The gap between performing the work and receiving the payment could be months. Often, the financial solution is found in maintaining a line of credit to pay for production costs until the influx of revenue arrives.

A leading designer and builder of advanced test machines, Michigan Custom Machines, of Novi, received a critical line of credit made possible in part by a pledge of security from the Michigan Strategic Fund (MSF).

At its monthly meeting on April 26, the MSF approved $4.99 million in collateral support as key leverage for Novi-based Michigan Custom Machines to obtain $10 million financing from Citizens Bank. The collateral support from the MSF allows Michigan Custom Machines to obtain working capital financing that would not have been available at the same amount under conventional terms.

“Providing timely capital to a company goes to the heart of doing what it takes to help small business remain competitive,” said Steve Arwood, CEO, Michigan Economic Development Corporation, which, administers on behalf of the MSF the state’s capital access program. MEDC is the state’s chief marketing arm, providing strategic business attraction and retention services.

“We are looking continually to support small businesses by providing services that fill a gap in the private sector,” said Arwood. “Providing access to capital at a key time in the billing cycle is invaluable in helping business to take on work and flourish.”

Michigan Custom Machines builds testing machines for both original equipment manufacturers (“OEM”) as well as Tier 1 suppliers. Currently, it supplies testing machines to automotive and airline companies, among others.

Because of regulatory requirements, financial lending institutions generally employ a formula that considers accounts receivable when determining available funding. In the case of Michigan Custom Machines and other similar manufacturers that work on contracts that require extended payment terms, the lenders may require additional collateral in order to provide necessary funding. MSF Collateral Support has the ability to fill the financing gap, then upon repayment of the commercial loan, this collateral is returned to the MSF.

“With significant work contracts for major OEMs for 9- and 10-speed transmission programs, comes upfront costs that are now manageable with the support of the MSF,” said Mike Schena, president and CEO of Michigan Custom Machines.

“This collateral support is essential for us to continue to grow and serve our clients current and future needs,” he said. “It is critical for us to remain competitive.”