Is an SBA Loan Right For Your Manufacturing Company?

Business Expansion, Business Guides

Jacques Famy Jr
Review By Todd Millman

Producing aircraft, computers, automobiles, and heavy machinery is no small or inexpensive feat. The manufacturing industry is vital to successful economies worldwide, and specialized equipment and skilled labor are necessary to keep manufacturing businesses running.

If you own a manufacturing company, it's common to need more working capital to cover unexpected cash flow issues, obtain improved manufacturing equipment or raw materials, expand your business's real estate, or cover other business expenses. If you need business financing to support your manufacturing business, you could benefit from applying for a manufacturing loan.

There are many manufacturing loans and loan programs available to small business owners just like you. One of the most popular loans is a Small Business Administration (SBA) loan. Could an SBA loan help your manufacturing business? Keep reading to find out.

What Is an SBA Loan?

An SBA loan is one of many business loans for manufacturing companies. SBA loans are supported by the United States Small Business Administration, a government agency that exists to connect small businesses across the country with SBA-approved loan programs.

The SBA does not lend funds itself but instead provides business loan program guarantees of up to 85% of the funding amount provided through approved lenders. SBA loans are highly sought-after because they offer low and competitive interest rates. In addition to low interest rates, small business loans offer long-term funding options, up to 25 years for some products.

So, what's the catch? An SBA loan will have some of the best terms on the market, but securing a loan often has stricter qualifications than other financing options.

How To Qualify For SBA Loan?

If you want to secure a low interest rate with an SBA loan, your manufacturing business will need to meet specific qualifications, which can be strict. To be eligible for SBA financing, you must meet the following conditions:

  • Your manufacturing business must be physically located in the United States.
  • Your company must provide business documentation that proves you operate legally and are registered as a for-profit organization.
  • You, as the owner, must have invested your own time or funds into the business.
  • Your business must qualify as a small business in the manufacturing industry.

Along with your small business loan application, you will need to provide the following details:

1. Credit History

The SBA requires a strong credit history from applicants. If you have a poor personal or business credit score, this loan option is not the best fit for you. Your personal credit score will be taken into account the most, but your business credit score will also be considered if you have one.

Typically, a minimum credit score of 640 is needed for an SBA loan. However, you'll increase your chances of getting approved with a credit score of 680 or higher.

2. Business Plan

Creating and including a business plan is a smart idea any time you seek out a business loan. For the SBA application, providing a business plan is required.

In writing, describe your intended use of the money you requested and the overall plan for your business. The SBA offers a free business plan guide to help so that you don't miss any important details.

3. Use of Funds

When you apply, describe how you came up with the amount of money you are seeking. Detail how you will use the money to support your business.

4. Financial Statements

Depending on the program you apply for, you will likely need to provide financial projections or paperwork such as:

  • Bank statements
  • Tax returns
  • Balance sheets
  • Profit and loss statements

5. Collateral

Many SBA-approved lenders require collateral to minimize their lending risk so that they can offer a low interest rate. Collateral is an additional asset put up that the lender has the right to seize if you fail to pay back the loan. Collateral can include assets like:

  • Personal or commercial real estate
  • Financial accounts
  • Vehicles
  • Fine artwork or jewelry
  • Business inventory
  • Stocks and bonds

6. Years in Business

While some alternative lenders do not require you to have extensive industry experience, the SBA wants to finance someone who has a good chance of success.

Include your years spent in business and all other applicable experience with your application.

Qualifications Needed For an SBA Loan

Other Great Manufacturing Business Loans

If you are interested in an SBA loan but don't meet the requirements, don't fret. Many other fantastic business loan options for small manufacturing businesses are available through traditional lenders like banks and alternative lenders online. Finding a lending partner who can provide funding for your manufacturing business is easier than you might think, especially when you seek out one of the following manufacturing business loans:

a. Business Line of Credit for Manufacturing Businesses

If you need a reliable credit line to fall back on for emergency purchases, payroll, or other business expenses, consider a business line of credit. Lines of credit for manufacturing businesses work similarly to a business credit card.

This financing option is a revolving line of credit that allows you to draw funds out as needed. The best part is that you only pay interest on the funds you actually use. A business line of credit is great for working capital needs since you can draw on it only when needed. Costs and fees are lower than other manufacturing loans.

b. Equipment Financing

If you're looking to upgrade and own new equipment, it's not uncommon to run into cash flow issues that hinder you from making such a large purchase. New equipment can dramatically improve business operations, so equipment loans are the perfect option for your business if you need financing.

In equipment financing, the equipment itself operates as collateral, which reduces the risk for the lender. Once you pay off the equipment, typically within one to seven years, you officially own it. Monthly payments are affordable, and the application requires minimal paperwork.

c. Manufacturing Term Loans

Depending on your credit history and how fast you need funds, a term loan could work for your company. Term loans are defined by the length of time the borrower has to pay back the loan and interest. There are two types of term loans: short-term and long-term loans.

d. Short-Term Loans

If you need a business loan fast, then a short-term loan may be your most accessible form of funding. Many small business owners can receive same-day or 24-hour funding with short-term loans. Even borrowers with poor credit are considered for this business loan.

Typically, short-term loans have repayment terms of 18 months or less. You can expect to make payments monthly, bi-weekly, or weekly.

e. Long-Term Loans

If you have a higher credit score, you may be eligible for a long-term loan. Long-term small business loans offer a fixed lump sum upfront that is repaid over two to ten years. The interest rates in long-term loans are typically more desirable for small business owners.

Loan amounts vary depending on what the funds are needed for. This business loan is excellent for manufacturing businesses that are looking to expand their operations.

f. Invoice Financing For Manufacturing Companies

If you have clients that don't pay their invoices on time, you know how frustrating that can be as a small business owner. Thankfully, there is a financing option to cover your clients' delays so that you can have working capital.

Invoice financing, or accounts receivable financing, is a loan product that works when you sell unpaid invoices to a factoring company for a large percentage of their total worth. Your client then pays the factoring company.

Invoice financing offers many benefits for manufacturing businesses. This process is technically not a business loan, so you get fast access to working capital for a low fee and no monthly payments or long-term debt obligations.

g. Business Cash Advance

A business cash advance is a type of business loan that is accessible for manufactures with any credit score. In a cash advance, your business receives a lump sum of cash upfront, and the lender draws a fixed percentage of the business's daily sales to pay back the money.

There are no specified term lengths with a cash advance, as the fixed percentage of daily sales will continue to be collected until the specified amount is met.

Other Great Manufacturing Business Loans

Business Funding Is Available for the Manufacturing Industry

So, does an SBA loan seem like the best option for your manufacturing business? Or are you better suited to a differing financing option, such as equipment financing or a short-term loan?

No matter how fast you need cash, your credit history, or what you need the funds for, there is a manufacturing loan out there for you. Online lenders like AdvancePoint Capital are eager to finance your small business with a loan option that meets your needs.

Don't wait any longer to secure the manufacturing financing you need. Contact AdvancePoint Capital and get started today!

Jacques Famy Jr

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