One of the most important sectors in the economy of the United States is manufacturing. It accounts for a significant percentage of the G.D.P. and experiences continuing growth. However, manufacturers often need outside financing for a variety of reasons, including real estate purchase and refinancing, meeting payroll obligations, acquiring equipment, and expansion. Here are some of the financing options available to manufacturing businesses.
Loans from Traditional Banks
Traditional banks offer some of the best terms and rates for loans to manufacturing businesses. They also have a diversity of options, including term loans, real estate loans, equipment financing, and lines of credit. However, because these loans are the most desirable, banks only provide them to low-risk companies with ample collateral, good debt payment histories, and strong cash flow.
Loans from the U.S. Small Business Administration
Manufacturing businesses that cannot qualify for funding from traditional banks may be able to obtain loans from the SBA. The SBA does not lend money directly but instead backs loans from SBA-approved lenders. This offers opportunities for funding to companies that have been turned down by banks.
Alternative lenders offer financing to manufacturing businesses that would not otherwise be able to obtain loans. They provide a range of funding products, require less documentation, and approve applications faster. However, they often have shorter terms and higher rates.
Invoice factoring involves selling a manufacturing business’s unpaid accounts receivables to a factoring company. The lender then advances 70 to 90 percent of the invoice amount. Once the clients have paid their bills, the business receives the balance of the payment minus a factoring fee.
Equipment financing allows manufacturing businesses to acquire the equipment they need without having to come up with the full price for it. Often manufacturers lease the equipment from financing companies, and at the end of the lease term, the company can extend the lease, buy the equipment, or return it.
For more advice on financing for manufacturing businesses, get in touch with Coastal Commercial Lending.