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Manufacturing Business Funding: How To Choose

Written by Allison Martin

Allison Martin is a personal finance enthusiast and a passionate entrepreneur. With over a decade of experience, Allison has made a name for herself as a syndicated financial writer. Her articles are published in leading publications, like, Bankrate, The Wall Street Journal, MSN Money, and Investopedia. When she’s not busy creating content, Allison travels nationwide, sharing her knowledge and expertise in financial literacy and entrepreneurship through interactive workshops and programs. She also works as a Certified Financial Education Instructor (CFEI) dedicated to helping people from all walks of life achieve financial freedom and success.

Updated March 12, 2024​

5 min. read​

manufacturing business funding

If you operate in the manufacturing industry, you understand the importance of securing funding to support operations, purchase equipment and expand production capabilities. These objectives all play a critical role in helping your company gain a competitive edge and thrive over time. Yet, figuring out where to turn for funding can be challenging.

This guide dives into various types of manufacturing funding, how it can help your business and what’s needed for the lender to say yes to your request for a loan.

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What Is Manufacturing Business Funding?

As the name suggests, manufacturing business funding refers to any form of financing used to financially support companies operating in the manufacturing sector. It’s often used to cover the cost of acquiring raw materials and equipment, along with labor costs. You can obtain manufacturing business funding in several ways, including business loans, small business loans, and even grants. More on this shortly.

How Can Funding Help Your Manufacturing Business?

Securing funding can be vital to kick-starting your operations and ensuring long-term success. Here’s a closer look at how your manufacturing company can benefit.

Applications for Licenses and Permits

Banks and other financial institutions can provide the necessary capital to pay for permits, licenses, and registration fees required for your manufacturing business startup. Applying for these certifications can be costly and time-consuming, but with appropriate financing, you can efficiently navigate the application process and legally launch your company.

Construction and Rental Costs

Funding can also help with the expenses related to the construction or rental of facilities needed for your manufacturing business. Some loans, like the CDC/504 Loan Program, offer long-term, fixed-rate financing with rates tailored for small businesses. These loans can significantly alleviate the burden of rental costs and/or construction expenses.

Upgrading Warehouse and Retail Space

A well-maintained warehouse and retail space are pertinent for your business’s efficiency and customer satisfaction. Financing can support upgrades to improve your warehouse layout, supply chain infrastructure and the overall appearance of your retail space.

Purchasing Equipment and Materials

Equipment and raw materials play an essential role in manufacturing goods, but their cost can be a significant burden on your business’s cash flow. With the help of manufacturing financing, you can invest in purchasing quality equipment and materials to increase productivity and meet market demand without compromising your working capital.

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Covering Business Operations

Funding can help cover day-to-day business operations, including labor costs, utility bills, maintenance and other expenses. Manufacturing business financing offers loans with repayment terms extending up to two years or more to give you a reasonable monthly payment and help you keep your business on track.

Types of Loans Available for Manufacturing Businesses

Below are the most common forms of manufacturing business financing to choose from.

Traditional Bank Loans

Traditional bank loans can be a reliable option for funding your manufacturing business. These loans usually come with lower interest rates compared to other financing options. However, securing a loan from a bank requires a good credit score and collateral. Some banks also offer specialized loans specifically designed for manufacturers, including equipment financing and working capital loans.

Be prepared for a lengthy application process and strict eligibility criteria when applying for a traditional bank loan.

SBA Loans

The U.S. Small Business Administration (SBA) offers several loan programs for small businesses, including manufacturing entities. SBA loans typically feature lower interest rates and longer repayment terms than other financing options.

To be eligible for SBA loans, your manufacturing business must meet certain guidelines, such as being a for-profit company and operating within the United States. SBA loans can be used for various purposes, such as equipment purchases, working capital and expansion. The application process and funding timelines are relatively lengthy, though, so keep this in mind if your funding needs are urgent.

Asset-Based Loans

Asset-based loans are a type of financing that uses your business assets, such as inventory, equipment, or receivables, as collateral. These loans can be an excellent option if you have valuable assets but may not meet the credit requirements for traditional bank loans.

Asset-based loans can provide you with quick access to funds and give your manufacturing business the flexibility to cover short-term expenses or seize new opportunities. However, these loans often come with higher interest rates than traditional loans. You put your collateral at risk of seizure if you default on the loan agreement.

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Working Capital Loans

Working capital loans are designed to help businesses meet their short-term financial needs. They can be utilized to fund everyday operations, such as paying suppliers or covering payroll costs. These loans are suitable for manufacturing businesses with seasonal fluctuations or inconsistent cash flow.

Working capital loans have repayment terms ranging from 12 to 72 months. Plus, they can be acquired relatively quickly, often within a few business days.

Grants and Crowdfunding

Manufacturing businesses can also look beyond loans to explore funding alternatives, such as grants or crowdfunding. Government agencies and private organizations offer grants specifically for manufacturing businesses aimed at innovation, job creation, or environmental sustainability.

Crowdfunding platforms allow you to raise funds from individual investors in exchange for equity, debt, or rewards. This funding option can be especially useful for innovative manufacturing startups or for businesses looking for community support to expand their operations.

How to Get a Loan for Your Manufacturing Business Funding

If you want to move forward with getting a loan for your manufacturing business, here’s how to move forward.

Determine Your Funding Needs

Consider factors such as inventory, equipment, and working capital. Create a detailed financial plan that clearly communicates why you need funding. This will help you select the most suitable loan option and determine the loan amount you need.

Assess Your Business Qualifications

Lenders will assess your qualifications to get a loan for your manufacturing business. They typically consider factors such as your credit score, business financials and industry risk. Strengthen your loan application by improving your credit score, demonstrating a profitable financial history through detailed reports and highlighting your industry experience.

Necessary Documentation for Loan Application

Prepare all required documents to expedite the loan application process before you apply. These may include:

  • Business financial statements
  • Tax returns
  • Personal credit report
  • Legal documents (i.e., licenses and registrations)
  • Business plan
  • Collateral documentation (if applicable)

Organizing the necessary documents could also help avoid hiccups or unnecessary delays. Remember, this list is not inclusive, so you’ll need to confirm what’s needed with the lender before you apply.

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Understand the Associated Costs

It’s vital to understand the borrowing costs you’ll incur by taking out a business loan. Be aware of the interest rate and any additional fees, including the origination or prepayment fees. Also, calculate your expected monthly payments to determine the impact on your cash flow.

The Timeline for Loan Approval and Disbursement

Loan approval and disbursement timelines vary depending on the lender and the type of loan you select. For example, getting approved for an SBA loan can take several weeks to months. But alternatives, such as short-term loans or lines of credit, can be approved and disbursed much faster, helping you access funds when needed.

It’s equally important to factor in the timeline when planning for your manufacturing business funding. Doing so ensures you receive funding in time to complete important projects or to cover the necessary expenses.

How to Choose a Lender for a Manufacturing Business

Not all lenders are created equal. Here are some factors to consider when researching your options

  • Industry experience: Look for lenders with a proven track record in the manufacturing sector. They will have a better understanding of your unique challenges and requirements.
  • Loan offerings: Evaluate the different types of business loans and financing options they offer. Common options may include equipment financing, working capital loans, or lines of credit.
  • Interest rates and terms: Seek lenders capable of offering flexibility in their loan terms and interest rates. Also, negotiate with your lender to get the best rates and terms available to you.
  • Customer service: A responsive lender with a stellar reputation is vital. You want to ensure that your queries are addressed and any potential issues are resolved promptly. Refer to reviews from past and current customers for insight.

Ultimately, you want a lender offering funding options that align with your goals and that will support the growth of your manufacturing business.

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