How to Finance Your Manufacturing Business

Updated November 23, 2021

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In this guide, we will outline how to get manufacturing business loans and lines of credit. Keep reading to learn about small business loans and other key financial information. 

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What Financing Is Available for Manufacturing Businesses

When it comes to financing a manufacturing business, there are two common types of loans available: the small business loan and the equipment financing or leasing loan. You can also get a government loan supported by the Small Business Administration (SBA), which are low-interest and long-term loans.

Manufacturing business loans also include short-term loans that need to be repaid in only a few months, or you can pursue long-term loans that take 5 to 10 years (or longer) to repay. A manufacturing business can also get a line of credit, invoice financing, or a merchant cash advance

Whether you need manufacturing business loans to hire more staff, place more funds into the marketing department, or upgrade your equipment, there are more than enough financing options for your business to succeed.

How Do Manufacturing Loans Work?

Business owners can apply for manufacturing loans by filling out a simple online form. The next step will be speaking with a funding specialist who will contact you and discuss all of your financing options for a manufacturing loan. 

If you are approved for a manufacturing loan, then you should be able to get the funding in about one day. You will want to choose a lender with extensive experience working with small businesses, including manufacturing companies. 

Suppose you’re searching for a manufacturing loan because your business underwent significant hardships during the COVID-19 pandemic. In that case, You should be aware that you’re not alone and that you may qualify for bad credit loans.

Bad credit loans likely have a much higher interest rate. Still, lenders today are creating funding programs specifically to address the many small businesses that underwent financial hardships during the pandemic.

Short-Term Business Loans

Short-term business loans are designed to be paid off much faster than a standard business loan. On the other hand, long-term loans take around five years or even a couple of decades to pay off.  

Short-term business loans are paid off in only a few months. Sometimes, they can take up to three years to pay off. These types of loans are meant to cover smaller cash flow gaps for businesses seeing a temporary revenue gap.

Some types of short-term loans or financing options include:

  • Merchant cash advance

  • Invoice financing

  • A business line of credit

  • Working capital loan with monthly payments

Lines of Credit

business line of credit is like a small business loan that comes with a credit limit. The most interesting part of lines of credit is that they are not-term loans and can be renewed for the same amount as the original loan.

You only need to pay off the interest on the funds spent within the loan. Therefore, with a line of credit, manufacturing business owners will be able to save on interest.

There are two types of business lines of credit: a capital line of credit and a seasonal line of credit. While a capital line of credit covers various operating costs for a business, a seasonal line of credit covers unexpected costs or short-term expenses.

Invoice Factoring

Invoice factoring is one type of invoice financing where small business owners give some or all of the outstanding invoices to a third-party company. This third party will then pay you the majority of the invoices and pursue payment directly from the clients of the small business owner.

Once the third party confirms the validity of the invoices, the company pays you anywhere from 70 to 90 percent of the invoice amount. Once they receive the full payments from your clients, the third-party company will pay you the remaining amount except for the third-party fee.

This process can stabilize the revenue coming in for a small business owner.

Equipment Financing

Do you need to repair equipment or machinery? Or do you need to upgrade your technology to ensure greater efficiency for your business? 

As a manufacturing business owner, you may need to purchase robotics equipment, heat-press machinery, laser-cutting technologies, industrial printers, packaging equipment, and more.

Equipment financing will involve getting an equipment loan on which you will have to make regular payments including principal and interest costs. The lender may also hold a lien on your equipment to hold it as collateral in case the loan is not paid off. However, once it’s paid off, the lien is no longer applicable.

How to Qualify for Manufacturing Loans

When applying for manufacturing loans, you need to gather business documentation, determine your company’s needs, and figure out how much money you can afford to borrow. You’ll need the following paperwork to qualify and apply for a manufacturing loan:

  • Aging A/R and A/P report

  • Debt schedule

  • A three-year historical return

  • Year to date (YTD) financial report

Now that you know the different types of financing options you have as a manufacturing business owner, you can speak with lenders to get your business off the ground.

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