Manufacturing Loans & Financing: How to Finance Your Manufacturing Business

Manufacturing Loans & Financing: How to Finance Your Manufacturing Business

Manufacturing Loans & Financing: How to Finance Your Manufacturing Business

Although the demise of large manufacturing in the United States has been lamented for many years, the role small manufacturing plays in the US economy continues to be important—roughly 11.7 million workers in this country work in manufacturing and it’s estimated there will be need for 4.6 million manufacturing jobs over the next 10 years according to NAM (the National Association of Manufacturers).

How to get financing for your manufacturing business

Like their larger siblings, many small manufacturing companies rely on borrowed capital to fund equipment purchases, maintain business operations, and fuel growth. And like many small businesses, they face challenges larger companies don’t face when looking for borrowed capital. This is particularly true right now, as the US economy is going back to work following the economic shutdown caused by COVID-19.

Why get a manufacturing business loan? There may be numerous reasons:

  • To invest in equipment to keep up with demand
  • Supply chain interruptions 
  • Customers pay slowly 
  • Fluctuations in energy costs and expenditures

Here we will describe the types of loans available as well as how to qualify.

What Financing is Available to Small Manufacturing Businesses?

Not unlike previous recessionary periods, small business financing is taking a hit as lenders shrink credit lines, tighten their credit requirements, or have stepped away from making small business loans altogether. Obtaining financing will certainly be challenging through the rest of 2020, but there are options available—particularly for those manufacturing businesses with a good-to-excellent credit profile. And, depending on the type of financing you need, there are even options available for small manufacturers that have a less-than-perfect credit history.

Fortunately, many lenders understand the challenges manufacturers have faced over most of the first half of the year and will be looking for a strong history in the years predating 2020. In other words, a delinquency in May of 2020 will be looked at with more forgivingness than a chronic history of poor credit practices over the past few years.

How Do Manufacturing Loans Work?

A variety of loan options for manufacturing business loans and financing may be available, depending on needs and qualifications.

SBA guaranteed loans, short- and long-term small business loans, lines of credit, equipment financing and factoring all have a place within the manufacturing process (though some are better suited for specific use cases within the world of manufacturing).  Following are some popular loan types, along with lenders that offer them.

SBA Guaranteed Loans

Loans guaranteed by the Small Business Administration are often the lowest cost option available to those small businesses that meet credit and other requirements. Except for disaster loans, SBA loans are made by financial institutions approved by the SBA to make these loans.

As with most bank loans, it takes time for the application to be processed. It can take 60-90 days (sometimes much longer) to wade through the tedious application process, but this lower-cost financing is very appealing to borrowers who have the luxury of time to wait, and also meet the credit requirements.

7(a) loans 

7(a) is the most popular SBA loan program. The maximum loan amount is $5 million and funds may be used for working capital, real estate, equipment, or even to refinance debt in certain circumstances. They offer low interest rates and offer repayment periods of 10— 25 years. 

504 loans

SBA CDC 504 loans can fund projects that include the purchase or lease, and/or improvement or renovation of long-term fixed assets by a small business. This may include the purchase or upgrading of equipment or the acquisition or expansion of real estate. 

These loans are generally structured so that:

  • A certified Development Company (CDC) provides up to 40% of the financing through a 504 debenture (guaranteed 100% by SBA); 
  • A third party lender provides 50% or more of the financing; 
  • The borrower contributes at least 10% of the financing. 

There is no limit on project size but the maximum SBA debenture is $5 million in most cases ($5.5 million for certain projects).

Export Loans

The SBA offers loan programs for businesses that export outside the U.S.. By guaranteeing the majority of these loans, lenders are able to make these loans that are often considered more risky.

Export Working Capital loans offer up to $5 million and may provide funding in advance of finalizing an export sale or contract. This allows exporters flexibility in negotiating export payment terms. 

Export Express Loans do not require SBA approval, which means they may be approved more quickly. The maximum loan amount is $500,000.


SBA Lender: SmartBiz

SmartBiz’s online application makes it much easier to apply for an SBA loan than most traditional lenders with time to funding in less than a month from the time your loan application is approved. SBA loan requirements are strict, so you can save yourself a lot of time by making sure you qualify before you apply.

Short-Term Business Loans

There’s a difference between the financing needed to purchase raw materials and large pieces of manufacturing equipment. A term loan of 5 or 10 years might be too long for some use cases, so a short-term loan of 6-months to 2- or 3-years might be a better option. Many online lenders can give you an answer to your loan application the same day and fund your loan in 24-48 hours.

Short-Term Lender: Kapitus

Kapitus offers short-term loans up to $500,000 in as little as 24 hours. This is a good source of capital for purchasing inventory, bridge financing, or any other use you may need for financing that can be repaid in a term of 3-36 months.

Short-Term Lender: ForwardLine

ForwardLine has been offering short-term business financing for the past 13 years. Rates are reasonable and affordable with no hidden fees. The online application process is easy and doesn’t affect your FICO® score to apply. Credit decisions are made “instantly” and your loan will be funded in as little as one business day.

Short-Term Lender: LendSpark

LendSpark offers a number of fast, secure, and flexible options to grow your business. A good option for short-term needs like expansion projects, initiating new projects or product lines, ramping up new staff, or working capital.

Intermediate-Term Loans

Loans with a longer term could be a good use for expanding your manufacturing plant, opening a new facility, or any other purchase that requires a larger capital outlay. If the useful life of what you’re purchasing will exceed a few months or a handful of years, a long-term loan might be the best solution to meet those needs.

Intermediate-Term Lender: Credibility Capital

Credibility Capital offers transparent, fully-amortized term-loans up the $350,000 that are paid in fixed monthly payments over 2- or 3-year terms. Rates start at 8% with no prepayment penalties or other hidden fees. Their short (5 min) application will not affect your personal credit score.

Lines of Credit

A business line of credit has been a traditional source of capital to meet short-term needs for small businesses for many years. Both traditional lenders and online lenders offer lines of credit with terms up to a year or more. Lines of credit are one of the first loan types to be impacted by recessionary times and will likely take several months to recover from the economic downturn associated with the coronavirus.

Invoice Factoring

Factoring has been around for a long time and can be a fast and convenient way to finance initiatives to improve cash flow. Many manufacturers have successfully used factoring to access capital today that might otherwise be tied up with a customer invoice for 60-, 90-days, or even longer. Factoring is not really a loan, but is rather selling your Accounts Receivable at a discount to gain access to that capital now, rather than waiting for customers to pay their invoices. Factoring is also one of the options still readily available in the post COVID-19 world.

Invoice Factoring Company: Fundbox

Fundbox represents a new breed of factoring companies. Built and designed by a group of technological innovators and financial professionals, Fundbox offers business owners a convenient way to address their cash flow challenges by taking traditional factoring online.

Invoice Factoring Company: BlueVine

BlueVine is another technological innovator in the world of factoring to help businesses that experience long payment cycles or have lumpy (irregular cash flow) access their cash flow quickly. BlueVine is also integrated with the most popular accounting software, enabling small manufacturing companies to get funding with the click of a button.

Equipment Financing

Because of the easily collateralized nature of equipment financing, it is another financing option that is available right now for manufacturers. In addition to the manufacturing equipment typically associated with equipment loans, just about any tangible asset used to do business could be considered equipment—including office furniture or computer equipment.

Equipment Lender: LendSpark

In addition to short-term financing, LendSpark is able to provide the equipment financing many small manufacturers need with low rates, fast approvals, and the tax advantages associated with equipment financing.

Equipment Lender: TimePayment

Time payment offers equipment leases from $500 to $100,000. Their multi-level credit scoring model allows them to approve a wide range of customers, including small manufacturing companies and new businesses. They are able to approve transactions under $10,000 online within minutes and larger transactions within a few hours.

How to Qualify for Manufacturing Loans

The qualifications needed to get approved depend on the type of financing. For example, broadly speaking:

  • Invoice factoring primarily considers the quality of outstanding B2B invoices. Business credit may be checked, but good personal credit is often not required, or will likely be flexible
  • Qualifying for SBA and bank loans almost always requires strong financials and good credit
  • Term loans may require good personal credit scores and will likely review business bank account statements to verify revenues

How to Finance An Increase In Orders

Because the cash flow cycle is often longer for manufacturing companies than other small businesses, many manufacturing companies turn to invoice financing (or accounts receivable factoring) to shorten the time it takes to receive payment for an invoice. A third party, known as a factor or factoring company, purchases your company’s accounts receivable at a discount typically paying you 85% to 90% of the value of your Accounts Receivable today and the balance (minus their fees) once they collect from your customers.

Factors often work within specific industries like manufacturing because they are familiar with the payment cycles that generally take place in those industries and are able to better evaluate the creditworthiness of your customers—to determine if they are likely to pay your invoices. Although there are some factors that will allow you to continue to collect directly, most factors will collect from your customers.

There are a number of ways to finance a sudden, or short-term,  increase in demand for your products. Short-term financing allows you to access capital quickly, to meet the increase in demand, without the burden of long-term debt that could encumber your business for several years. 

Short-term loans can be more expensive than other financing options, but applications are often processed within the same day and funds are available often within 24-48 hours. Remember, increased access and speed often includes a premium price. A defined ROI target will help you determine if the price will allow you to ramp up production and generate more profits.

How to Finance Expansion

In addition to a guaranteed loan by the SBA, traditional banks offer long-term financing solutions to fund expansion—provided you meet the rigid credit requirements. In addition to traditional banks and the SBA, there are online lenders that also offer long-term financing to fuel the expansion of a manufacturing business.

How to finance new manufacturing equipment

Fortunately, there are a number of financing options for new equipment purchases. Both equipment financing and leasing options are available to most manufacturing companies with competitive interest rates, favorable terms, and loan amounts appropriate for most manufacturing equipment needs. SBA 7(a) or 504 loans may be excellent options as well.

What is manufacturing reshoring?

Over the last 50 years, many manufacturers took their manufacturing processes overseas to take advantage of lower labor costs. Reshoring is the practice of bringing those processes (and those jobs) back to the United States. Reshoring does a number of positive things for the US economy. It reduces the trade deficit, creates jobs in the US, and fosters a skilled workforce. Reshoring may also reduce the total costs of production.

What are the advantages of financing manufacturing reshoring?

The expense of reshoring makes it difficult if not impossible to finance for most small manufacturing companies from cash flow. The US government, among other options, is offering financing to return critical supply chains to the United States.

For example, as the result of supply chain challenges caused by the coronavirus, the U.S. International Development Finance Corp has been working with companies to bring the manufacturing of personal protective equipment (PPE) back to the US.

According to the nonpartisan Reshoring Institute, benefits of manufacturing reshoring include quality and more streamlined distribution. Most importantly, it brings American jobs back home.

Nav’s Final Word: Manufacturing Financing and Loans

The manufacturing industry plays an important role in the US economy with many small manufacturers hitting above their weight by hiring skilled workers and contributing to their local economies. Like their larger siblings, these smaller companies rely on borrowed capital to fund expansion, fuel growth, and meet their working capital and cash flow needs. Fortunately, there are a lot of financing options available to small business owners with well-run manufacturing firms from both traditional and alternative lenders.

Visit Nav to learn more about all the financing available to your small manufacturing company, including SBA loans, business credit cards, and other small business loans. You can also learn more about your business credit with a free look at your business credit scores.

This article was originally written on June 24, 2020 and updated on January 31, 2023.

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