Manufacturing loans give business owners the capital they need to grow. But securing financing isn’t always a simple process. Traditional loan fund
Manufacturing loans give business owners the capital they need to grow. But securing financing isn’t always a simple process.
Traditional loan funding requires extensive paperwork, lengthy turnaround times and the risk of putting up collateral. Alternative lenders and lending marketplaces offer manufacturing loans with less red tape, quicker approval and flexible funding options.
Purchasing equipment can be a significant investment for any business. It can also put a large strain on cash flow, which is why many businesses choose to seek out financing for their equipment purchases.
Most of the time, equipment financing takes the form of either a loan or an equipment lease. Leasing equipment is generally a more affordable option for most companies because it requires no upfront down payment. However, leasing typically doesn’t cover 100% of the cost of the equipment. The remaining amount is generally financed by an equipment financer, who may require a down payment or ask for additional collateral (such as a personal guarantee and/or UCC blanket lien) in case of default.
Many banks, credit unions and private lending institutions offer equipment financing, as do SBA lenders. In addition, many manufacturers offer their own financing plans for their own equipment. However, if you decide to pursue these types of financing options, make sure you fully evaluate your ability to make regular loan payments. If you’re unable to meet those obligations, you could end up losing the equipment you purchased (as well as any other assets that were used as collateral) and possibly damaging your business reputation and credit score. In some cases, an equipment loan may have a term that lasts the entire life of the purchased equipment. In other cases, it may last for three to 10 years or more.
Inventory financing is a business finance method that lends money against the resale value of your inventory. This is popular among ecommerce and retail stores, wholesalers, and seasonal businesses that rely on high-volume sales during specific times of the year. The main purpose of inventory financing is to give businesses the capital they need to stock up on new goods in advance of these periods.
Lenders consider this type of lending on a case-by-case basis and look at the overall company’s sales history, profits, and projections before deciding whether or not to approve a loan or line of credit. This can make inventory financing less accessible to ecommerce and retail brands that are still growing, or have not established a reliable track record with lenders.
If you are able to convince the lender that you can sell your inventory for a profit, they will be more likely to offer you the amount you need. Generally, the lender will only finance up to a percentage of the inventory’s total value. This is because the resale value of the inventory depreciates over time.
Because this type of financing is considered riskier than other types of loans, you will have to pay higher rates for inventory financing. However, the application process is usually much faster than for traditional bank loans.
Business Line of Credit
Often referred to as a revolving line of credit, this financing option is similar to a business credit card. It provides flexible access to financing and you only pay interest on funds used. This is especially useful when you need to manage short-term cash flow challenges or jump start growth initiatives that require additional capital. The main challenge with this type of financing is that it can be more difficult to obtain than a traditional loan due to stricter lender requirements. Generally, you must have good personal and business credit and have an established track record of revenue generation.
Lenders may also require a lien on certain assets or a personal guarantee in the event of default. You may have a secured or unsecured line of credit and each has its own set of requirements. A secured line of credit typically requires collateral such as cash, investments, real estate or physical inventory. This is a way to reduce risk for the lender and help you qualify for a more favorable line of credit limit. A revolving line of credit can be great for covering short-term operating expenses like payroll or inventory. But it must be managed carefully. If you withdraw too much money, you could exhaust your limit and have to wait until funding becomes available again.
Manufacturing is a resource-intensive industry, and even the most well-equipped company needs access to working capital to pay for daily operating costs, compensation for employees and service providers, and purchasing materials. If your business is facing a demanding billing cycle or clients are taking longer than usual to pay, a line of credit can provide short-term financing and give you the flexibility you need.
Manufacturers are constantly investing in the latest technologies and improving their processes to meet growing demand and remain competitive. If your business is unable to afford these upgrades without financing, your growth and success could be at risk.
Manufacturing loans can help your small business afford the newest equipment and technology, maintain adequate inventory levels and grow into new market opportunities. If you’re ready to make the investments your business needs to succeed, a Funding Advisor can match you with the funding program that best fits your specific requirements. Get started with a free application, and you could be funded in as little as 24 hours. You won’t have to worry about a long or complicated application process, and you don’t need to have perfect credit. Simply apply online, and you’ll receive a response within 24 hours. The funding process is simple, fast and transparent. Start the journey to a successful manufacturing business today!