Business Guides

7 Reasons You Should Apply for a Manufacturing Loan

Last updated on June 24, 2021

Jacques Famy Jr

Businesses in the manufacturing industry keep our economy running smoothly. Without manufacturers, shelves in supermarkets and stores nationwide would likely be completely empty.

We need manufacturers to provide various products necessary for daily life and other business operations. Running a manufacturing company can be quite successful, but sometimes these types of businesses can run into a few roadblocks when it comes to funds.

Banks, credit unions, and online lenders alike offer financing options and loan products, providing manufacturing companies with the working capital required to keep things up and running year-round.

The Manufacturing Business: A Primary Economic Player

Manufacturing is an overarching term used to describe a wide variety of businesses. You might be picturing rows of never-ending assembly lines and heavy machinery, but manufacturing can mean so much more.

Pretty much everything consumers buy goes through a manufacturing facility. From the initial creation of a product to its placement in containers and shipment to stores or consumers, manufacturing covers a lot of bases.

For example, a company that creates beauty products might manufacture each item from raw materials, package it on-site, and provide shipping services to various stores. Food manufacturers may do the same, just with a different kind of product. Car parts and other mechanical items are also made and often distributed by different manufacturing companies.

As you can see, manufacturing can mean many different things. Regardless of the product a manufacturing business supplies, they’ll surely require business financing at some point to continue growing and improving operations.

7 Major Reasons to Apply for Manufacturing Loans

Investing in your manufacturing business is essential for growth. As a result, owners of manufacturing companies often seek business financing or manufacturing loans from banks, credit unions, or online lenders to continue improving their small businesses.

Let’s explore why it’s so essential for your small business to apply for loans in the manufacturing industry:

1. Working Capital

After dipping your toes (or diving headfirst) into the manufacturing industry, you might be left wondering what the best methods are to grow your business. Working capital is one thing small businesses can’t survive without. Manufacturing loans can help improve cash flow, bringing in more working capital to your small business.

So, what is working capital? The answer to that question is really quite simple.

Calculating your company’s working capital requires an appraisal of all of your business’s assets minus its liabilities. Liabilities are outstanding debt obligations or other things that small businesses spend money on to keep things running smoothly, such as:

  • Loans and financing
  • Accounts payable
  • Employee payroll
  • Expenses
  • Operating costs
  • Bonds
  • Mortgages
  • Leases and rentals
  • Legal protections

The money that remains after all liabilities are paid each month or year makes up a company’s working capital. Business owners often utilize the leftover assets to meet payroll demands, start a big project, hire employees, invest in marketing, expand the business, or buy new supplies and inventory.

2. Inventory

Every manufacturer requires inventory to operate efficiently. Business loans for manufacturers help meet inventory requirements. Your company may keep several essential items and supplies on hand, such as:

  • Raw materials
  • Ingredients
  • Packaging and shipping supplies
  • Seasonal/holiday inventory

Having a healthy inventory helps put your business ahead. For example, you can invest in seasonal stock around the holidays or maintain smooth shipping operations with business funding for manufacturers.

3. Equipment Purchases

For businesses in the manufacturing industry, functioning without proper equipment and machinery is pretty much impossible. But, let’s face it, manufacturing equipment can be costly for a startup company.

Most small business owners think they must choose between leasing and buying equipment to meet the demands of daily operations in the manufacturing business. Luckily, leasing and buying manufacturing equipment isn’t the only option.

Manufacturing business loans help meet the need for heavy machinery, allowing you to purchase new and used equipment, repair existing machinery, and fix smaller tools.

Some common kinds of equipment required for running a manufacturing business include:

  • Packaging equipment
  • Molding and die-casting machines
  • Cutting machinery (laser cutters, die-cut machines, etc.)
  • Drilling, milling, and grinding equipment
  • Industrial printers and computerized systems
  • Production lines and production machinery
  • Lamination machines
  • Metal-working tools
  • Handheld power tools
  • And more!

Equipment loans are an attractive option for any small manufacturing business. One great feature of this business loan is that your company gets to keep the equipment after meeting the full repayment terms in the agreed-upon period.

4. Unexpected Cash Flow Issues

Sometimes your small business can’t avoid a few bumps in the road. Unpaid invoices, investments in new projects or products, and other significant costs can create a cash shortage for small businesses.

Cash flow problems can put your company behind the competition. Business loans for manufacturers make it much easier to deal with daunting cash flow problems before they extrapolate. With a manufacturing loan, your business can meet the demands of purchases, payroll, projects, expansion, and more.

5. Hiring and Payroll

Business owners can’t expect high-quality employees to stick around if payroll issues continue to persist. Manufacturing loans help small businesses in this industry meet payroll demands for existing employees. This type of business funding can also help small businesses find and secure top candidates for open positions.

6. Business Expansion

Business expansion is vital in the manufacturing industry. As your company continues to grow, it’ll likely need more space for inventory storage, shipping operations, and the manufacturing process itself.

Many manufacturing businesses start out in small buildings but find they’ve outgrown their initial startup locations over time. Small business loans aid expansion and renovation, so your manufacturing business can fit into a facility that meets the demands of daily operations and annual growth expectations.

Although loans for manufacturing companies are an excellent product for newer businesses in the industry, it’s also a great business financing tool for more established entities. These loans give small businesses the working capital required to renovate existing locations or expand into new ones.

7. Marketing and Advertising

The manufacturing industry is a specialized one, requiring specific, intentional marketing and advertising campaigns to grow your client base. It’s crucial to keep your company’s name in front of potential customers, beating out your competitors. Loans for manufacturers can be put towards print advertising, commercials, billboards, or additional digital marketing efforts.

The Best Business Loans for Manufacturers

Even with a significant amount of initial investments and a steady stream of sales, manufacturing companies can burn through a lot of their money in minimal amounts of time. Traditional lending outlets like banks and credit unions can tie up small business owners in unfruitful financing obligations.

Instead, business owners in the manufacturing industry should seek alternative lending products to help propel the company forward instead of keeping it held down with daunting repayment terms.

Below, we look at the best business funding options from online lenders like AdvancePoint Capital for manufacturing companies:

Term Loans

Manufacturers might select a term loan to meet the demands of daily operations and long-term goals. Small business owners can take advantage of two unique term loan options:

Short-Term Business Loans

Short-term loans are a popular option for companies that need fast cash. Typically, that includes smaller startup operations trying to get on their feet.

Short-term loans offer a fixed amount of money with set terms and factor costs. Payments are made directly from a business bank account based on the terms and agreed-upon payback rate. Most short-term loans have a repayment period lasting less than 18 months.

Breakdown of Short-Term Loans:
  • Fast, same-day funding
  • All credit profiles considered
  • Limited paperwork
  • Easy application and quick approval
  • Limited repayment period (18 months or less on average)
  • Monthly or weekly payments

Long-Term Business Loans

Another term loan option for manufacturing business owners is a long-term loan. Unlike short-term loans, this financing option has an extended repayment period lasting at least two years or more.

Long-term loans provide a lump sum of cash upfront, with costs based on principal and interest rates. Many small business owners select long-term loans to help finance significant investments such as expansion and renovation.

Breakdown of Long-Term Loans:
  • Low interest rates and origination costs
  • Repayment terms from 2 to 5 years
  • Monthly payments
  • All credit profiles considered, good to excellent preferred
  • Greater loan amounts available

Each term loan option comes with its own positives and negatives. For example, businesses that need access to working capital right away might gravitate towards short-term loans, while more established companies can opt for long-term loans.

Long-term loans have stricter eligibility requirements than their short-term counterpart. As a result, small business owners struggling to improve their credit score might choose a short-term lending option instead.

Financing Options for Manufacturing Businesses

Short and long-term loans aren’t the only lending options available for manufacturing companies. Business owners can also select from the following financing products:

Invoice Financing

Invoice financing or factoring is another great solution for small businesses struggling to meet short-term cash flow needs. This financial transaction allows businesses to receive an advance on client invoices ahead of the expected payment date.

Invoice factoring companies typically take advances off receivable invoices 30 or 60 days before customers actually pay them off. Thus, invoice financing is a fantastic option when a company requires quick access to funds.

Highlights of Invoice Financing:
  • Low fees – typically no more than 2% of the invoice
  • No monthly payments
  • Credit requirements based on customers, not the business
  • Easy application
  • Fast access to working capital

Purchase Order Financing

Purchase order financing is perfect for manufacturers who often complete large wholesale orders. However, when customers place a significant order with a small business, it can be challenging to afford the supplies required to meet demands. That’s where purchase order financing can come into play for manufacturers.

Instead of struggling with the challenges of covering costs for supplies themselves, many manufacturers choose purchase order financing to solve recurrent cash flow issues. Lenders will provide direct payment to suppliers, so your company can quickly fulfill orders.

After an order is complete, your customer pays a purchase order financing company directly, rather than sending the proceeds to you. Then, the purchase order financing company sends back the remaining balance to your business.

Purchase order financing can be highly advantageous for companies that take on large projects or customer orders, like:

  • Manufacturers
  • Wholesalers
  • Resellers
  • Distributors
  • Import/export businesses

Purchase orders can be continuous or a singular transaction. This financing option allows businesses to pay for the costs of supplies and other essential items without using available capital, giving companies the ability to take on more orders. Purchase order financing is a flexible financing product great for startups or companies tight on cash.

Highlights of Purchase Order Financing for Manufacturers:
  • Transaction is immediate
  • Low origination fees
  • No credit evaluation
  • Minimal costs
  • Quick application
  • One-time or continuous transactions
  • No commitments

Equipment Loans for Manufacturing Businesses

Equipment is at the core of running a quality business in this industry. As a result, equipment financing is a popular tool to help meet the demands of daily operations.

These affordable loans are typically structured so that the equipment itself acts as collateral. After the terms of this financing option are met, the machinery becomes the property of the manufacturing business. Repayment periods can last anywhere from one to seven years, helping keep cash in company reserves.

Equipment loans aren’t only used to obtain heavy manufacturing machinery. Business owners also utilize funds from equipment financing for repairs, regular maintenance, and purchasing smaller tools or even trucks and other vehicles.

So, funding from equipment loans can improve product quality, reduce labor costs, and strengthen a business’s overall structure.

Grow Your Operations With AdvancePoint Capital

Manufacturing is a booming industry with many moving parts. So whether you’re a well-established business or just a budding enterprise, funding is essential for success.

Securing loans or financing from conventional outlets like banks and credit unions can be tricky. Online lenders and alternative lending marketplaces give business owners — even business owners with bad credit — an opportunity to receive the capital required to keep growing and taking on new projects.

Promote your business, buy new equipment, expand operations, and complete other essential tasks typical in this industry. Contact AdvancePoint Capital today to explore a marketplace of valuable business loans for manufacturers.

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* All loans made by either WebBank, an FDIC-insured Utah industrial bank, or Bank of the Internet Federal Bank, an FDIC-insured federally chartered thrift located in California. In connection with the loans, the Banks' underwriting conditions and terms apply.