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Manufacturing Business financing: Everything A Small Business Owner Needs to Know

Manufacturing Business Financing: Everything A Small Business Owner Needs to Know

The manufacturing industry is one of the most profitable industries to start a business. The population is increasing, and more people require products day by day. According to the National Association of Manufacturers,) 4-6 million new manufacturing jobs were needed in 2020.

It’s no secret that running a manufacturing business is not easy. Aside from the usual challenges of any small business, manufacturers also face specific hurdles such as expensive equipment and production costs.

So how do you get over these barriers and keep your business moving forward? One crucial way is by securing financing for your operations through manufacturing business loans.

Our guide will provide everything you need to know about financing options for small businesses in the manufacturing industry. Let’s get started!

Why Should You Get a Manufacturing Business Loan?

The US economy is gradually returning to work following the COVID-19 economic shutdown. For small manufacturing businesses, this may provide a window where those with good credit can get loans at more competitive rates than usual.

Small businesses affected by such incidents often need funding to maintain operations and fuel growth. Some common reasons why small manufacturing businesses seek out loans are:

  • To invest in equipment and keep up with demand
  • To solve supply chain interruptions 
  • To cover their accounts payable when customers delay their payments 
  • To pay for fluctuations in energy costs and expenditures

There are different types of small business loans manufacturing companies can consider. Keep reading to find out which one works best for your business goals!

7 Best Manufacturing Loans to Finance Your Business Operations

While 2020 was a setback for many businesses, including manufacturing businesses, 2022 seems to shine a glimmer of hope into the hearts of small business owners.

Luckily for them, lenders are becoming more flexible with their loan terms and not being too strict with credit requirements. If you want to start improving your manufacturing operations, now is the time to do it!

Here are our top 7 picks for small business loans to consider when scaling your manufacturing company.

1. Business Line of Credit

Business lines of credit are generally considered a better option than short-term loans since they operate similar to business credit cards. There’s a specific amount included in your account, and you are free to withdraw at any time.

You pay principal and interest on your accrued balance. Keep in mind that there’s a limit on your credit set at the time of your account consummation.

Main features of this loan:

  • Lower costs and fees compared to short-term loans
  • You’re responsible only for principal and interest on the outstanding balance
  • Draw money out according to your needs instead of an initial lump sum
  • An excellent option for working capital needs

2. Long-term Manufacturing Loans

These loans are given to small business owners for financing up to two years and more. Long-term small business loans provide a fixed lump sum upfront that’s repaid over an extended period based on a principal and interest rate.

This manufacturing loan is popular with owners with several projects lined up and want to secure their successful completion.

The main features of this loan include:

  • Interest rates are currently 5.5%
  • Terms are set from 2 to 10 years
  • Origination fees 0% to 3%
  • Payments are made monthly or bi-weekly
  • All types of credit scores considered, but good to excellent preferred

3. Short-term Manufacturing Loans

Unlike a principal and interest loan, a short-term small business loan provides a fixed amount over a fixed term with a fixed factor cost.

You are expected to pay either monthly or weekly directly out of your business bank account through ACH based on the term and payback amount. For manufacturing companies looking for a reliable way to get fast capital, short-term loans are a sound solution to get the financing you require for your company.

The main features of this loan include:

  • Same day to 24-hour funding
  • All types of credit are considered from excellent to poor credit
  • Limited paperwork is needed for approval
  • More accessible approval qualifications compared to a business credit line
  • Great for working capital needs

4. Manufacturing Equipment Financing

The essential parts of any manufacturing company are its machines and equipment. The cost of upgrading equipment often exceeds the available cash flow to support the purchase.

Equipment loans can help you accomplish the following:

  • Develop new product lines
  • Improve quality controls
  • Reduce labor costs
  • Strengthen overall business process and structure

Once you decide to purchase equipment for your small business, you put the equipment up as collateral like you would when buying a truck or automobile, for instance. Equipment loans are typically structured as a lease to purchase, providing manufacturers a good financing option.

The main features of this include:

  • Minimal paperwork and affordable monthly payments
  • Repayment terms from 1 to 7 years
  • Available cash flow instead of depleting company cash reserves

5. SBA Loans

While the most popular option, an SBA loan is manufacturers’ most challenging financing choice.

These are loans guaranteed by the U.S. Small Business Administration and funded by SBA-approved lenders. Because the Small Business Administration supports this loan, the interest rates and terms are more appealing than other types of business financing. But qualifications are more rigid on credit.

Getting approved for an SBA loan typically takes longer ( typically weeks and months even). However, most manufacturing companies consider waiting to access the highly low-interest rates and excellent terms.

The main features of this loan include:

  • Repayment terms from 1 to 25 years
  • Interest rates as low as 7%
  • Monthly payments
  • No strict restrictions on the use of funds

6. Invoice Factoring

Invoice factoring/financing allows your business to get an advance on their receivable invoices from their clients.

Invoice factoring lets you leverage outstanding invoices and receive advances off those invoices ahead of the “net” terms you need to pay.

It’s a receivable sale to a third party (factoring company). If your manufacturing business struggles with short-term cash flow and funds, you can choose this option.

Main features of this financing product include:

  • Super-fast access to capital with a simple application process
  • Lender credit requirements are based on your customer, not your business
  • Low fees of around 1 to 2% of the invoice amount
  • No monthly payments, long-term debt obligations, and account receivable
  • Great for working capital needs

7. Business Credit Cards

Business credit cards operate the same as personal credit cards, which are revolving lines of credit used with a specific account number.

Credit cards are an excellent option to finance smaller immediate purchases like paying for supplies, bills, equipment, and other small items your company needs. Revolving principal and interest cost.

Main features of this financing product include:

  • Building positive business credit
  • Easy to manage and use
  • Minimum monthly payments
  • Available at many lenders

Secure Your Manufacturing Financing Today

Manufacturing business owners looking to scale their company should be happy to find that they can accomplish their goals through additional financing options.

Whether you prefer an SBA, a short-term, or a business line of credit depends on the current state of your company and your future projections. That’s why having a solid business plan is crucial to ensure your investments will pay off in the long run.

Knowing you need financing is just the first step. The second step involves considering different lenders and deciding on the best option. Our experts at Select Funding are available to guide you with any questions you have concerning securing manufacturing business loans.

Check if you qualify for funding


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