When, Where And How To Finance Your Manufacturing Business

In the manufacturing world, there are many moving parts––each requiring capital. Here's where you will likely need funding and how to get it.

Photo: Zac Johnson, Online Marketer and Creator of Zacjohnson.com; Source: Courtesy Photo

The idea of seeking additional capital for your business can be stressful and intimidating. The important thing to remember is that raising capital is an essential business process and the role of every entrepreneur.

Businesses will seek out additional funding and financial resources for multiple reasons. However, in the world of manufacturing, where so many different raw materials, parts, and processes are in place, it can be even more crucial.

With this in mind, here are the most common reasons why entrepreneurs seek manufacturing loans, and some of the best ways to successfully secure one.


Common reasons to apply for a manufacturing loan

In the world of manufacturing, there are many moving parts––each requiring people, processes, and capital. Here’s a look at a few areas where manufacturing-based businesses will likely need additional funding.


  • Real estate: If you plan to manage a warehouse and set-up production runs, you will need a lot of square footage for your business location to house equipment, machines, supplies, and staff.
  • Qualified staff: Manufacturing businesses must have qualified workers to ensure all processes are performed correctly, even if heavy investment is placed in automation.
  • Machinery and equipment: Manufacturing machinery and equipment will be some of your greatest costs––especially if you plan to scale and increase volume runs over time.
  • Inventory: Manufacturing is capital intensive. There are plenty of additional fixed and variable costs associated with producing and carrying an inventory––especially for high volume runs. Additional cash flow may be required to hold your business over until the next big order arrives.
  • Marketing: Just like every business, you must put in the time and effort to reach new buyers and end-customers. Marketing is a necessary effort to gain high-quality leads, and increase sales.
  • Cash Flow: Cash flow covers everything from daily operations to cash on-hand for the unexpected.


How (and where) to finance your manufacturing business

Before considering financing or a business loan, learn about the available options. The amount of capital and likelihood of approval will depend on several factors. You’re probably considering bank loans or online lenders, which is the biggest decision in this process. Since both options are readily available, it’s important to learn about the benefits and terms associated with each route.


Securing a bank loan

Traditional retail and commercial banks often require a lot of paperwork, historical company financials, and a prior banking relationship. This presents a lot of hurdles and red tape for startups and small business owners.

Paperwork includes, and is not limited to, a business plan, bank statements, tax returns, proof of registration, licenses and permits, an EIN, financial statements (i.e., profit and loss statement, balance sheet, cash flow statement, etc.), Accounts Receivable Aging and Accounts Payable Aging, proof of collateral, and more.

Prospective borrowers are also expected to approve a credit check and meet a threshold credit score. Banks may also deny a business loan request if you have too much existing debt.


Working with an online lender

Online lenders are changing the way consumers and businesses borrow by offering quick approval, better rates, streamlined application processes, and unsecured loans. It’s similar to getting a loan anywhere else, but it feels much easier.

The growth of fin-tech has leveled the playing field allowing online lenders to become a go-to solution for business loans without having to visit a physical branch and apply for financing.

A clear benefit when working with an online lender is Online lenders often require less paperwork and rate comparison and transparency––a clear benefit for time-strapped business owners. Some online lenders will guarantee quick approval and deposited funds in less than 24 hours.

Meanwhile, if traditional banks and online lenders are not for you, an SBA loan is a viable option for many manufacturing companies.


Consider your options carefully

Money management is extremely important for all businesses, but after considering each of the options, you can see how it can be even more crucial in the world of manufacturing. If a rise in daily operating costs, expansion or new equipment are on the horizon for your business, be sure to consider these options carefully.


Zac Johnson is an entrepreneur who blogs at ZacJohnson.com. Follow his journey as he documents more than 20 years of experience and success in the world of online marketing and branding. Connect with @zacjohnsonon Twitter.


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