Loans for Manufacturing Businesses: Planning for Long-Term Success

Updated September 08, 2022

If you are an entrepreneur seeking financing to launch or grow a manufacturing business, you are probably searching for just the right opportunity. There are several financing sources that offer loans for manufacturing businesses, but alternative lenders might provide better terms to fit your needs.

Innovative thinkers appreciate having choices and seek solutions that answer to their unique business needs. Luckily, in addition to traditional commercial lenders, today’s financial landscape also offers non-traditional online loans for small business

Manufacturing Loans Are Most Often Needed For:

• Real estate: You need plenty of square footage to hold your manufacturing equipment, machinery and supplies.
• Qualified workers: You need to produce quality product and that requires a dedicated, experienced group of employees and new hires.
• Machinery and equipment: Depending on your product, purchasing the necessary machinery to meet production quotas can be one of the most expensive investments you may make in this business.
• Cash flow: Day to day operations requires extra capital to keep everything running smoothly and on schedule.

The manufacturing industry receives support from government agencies through an extensive network of programs and services dedicated to helping small manufacturing businesses get the funding they need to succeed.

On the flip-side, alternative lenders have designed programs that can offer greater ease, flexibility and terms that will meet your needs today as well as support you as your business grows. They can be key to accessing the cash you need quickly to launch or expand your business.

Loans for Manufacturing Business That Produce Results

There are a few different loan products for manufacturers available and lenders in which to pursue them, each with their own approval criteria, benefits and drawbacks:

• The Small Business Administration (SBA), a government agency that connects you to a partner financial institution for the loan and also backs a portion of the loan.
• Alternative lenders, which offer custom loan options and flexible repayment schedules along with a user-friendly application process.
• The big banks, which offer small business loans to companies with a strong credit history and a proven track record.

Small Business Administration Loans

The SBA is a government agency that offers several loan products to assist the manufacturing industry. The SBA itself does not lend the money, but connects you to a lending partner (usually banks or Certified Development Companies (CDC), and then guarantees a portion of the loan. The SBA offers a specific loan for manufacturing businesses that need start up financing, basically to acquire fixed assets like equipment or real estate. According to sba.gov, they are typically long term, fixed rate loans.

The Pros:

• SBA loans help those normally unable to secure financing on their own through the bank. They are often funded through private-sector lenders and are guaranteed by the SBA, so financial criteria can be easier to meet than if you just approached a conventional bank yourself.
• Meet the SBA requirements and you typically are granted a relatively low interest rate.

The Cons:

• As a government agency guaranteeing part of your loan, the application process is very detailed and is heavy in documentation requirements.
• Your credit, resume, business plan and even your skills and ability to manage your business are scrutinized in the decision process for the loan.
• Government agencies do not move quickly. Approval can take as much as 90 days.

Commercial Banks

According to about.com, conventional lending criteria has been tightened since the bank crisis of 2008, making qualifying very difficult, if not impossible, for some small business borrowers. If you are a start-up business, you probably lack a solid three years of business history that most will require on their application.

The Pros:

• If you can get loan approval, you will probably get a low interest rate, depending on your credit score.
• Approval this time means that the next time you need money, you may qualify with greater ease.

The Cons:

• An excellent credit score and credit history, for both you and the business is required to qualify.
• If you are trying to launch your manufacturing business, your application may be rejected by a bank. Most banks require a solid business history.
• The application process is very detailed and requires you to provide all documentation of your financial records and revenue claims.
• Part of the application requires an extremely detailed business plan outlining your business, marketing and distribution plans, as well as your competitors.
• You may have to risk valuable collateral in case you cannot repay the loan.

Alternative lenders

There are alternative lending options that will provide greater flexibility and ease than you will find through a conventional bank or the SBA.

The Pros:

• Alternative lenders often have less stringent requirements and a faster application process. Interest rates may be slightly higher than a bank, but you stand a greater chance of approval.
• The application is simple, and easy to complete. Documentation is light and easy to provide.
• Your business and what you are creating is more important than your past credit history, so an excellent credit score is not a required for approval.
• Start-ups are welcome and will usually find a solution and repayment schedule that limits risk and conforms to their business.

The Cons:

• Since the lender is accepting greater risk through less stringent credit requirements, the result is that the interest rate is typically a little higher than a bank.

The Bottom Line on Manufacturing Loans

It’s not surprising that any kind of business would need the occasional injection of cash. When it comes to loans for manufacturing businesses, it’s important to consider your needs as well as various funding options. Finding the right loan product can be key to success. To learn more about all of your business funding solutions contact Credibly today!