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Types of Manufacturing Loans

Posted on August 12, 2023

With equipment and technology that needs to be updated regularly, rising raw materials costs, labor and overhead expenses, the needs of a manufacturing business can often outgrow current resources. This is why manufacturing loans are a great way to get the funds you need to stay competitive and grow your business.

There are many different types of manufacturing loans available based on the individual company’s specific needs, financing requirements and qualifying criteria. From a term equipment loan to a line of credit that covers invoices, there are many options for manufacturers looking to expand or improve operations. The right lending partner will help you find the program that is a good fit for your manufacturing business.

Work-in-Progress (WIP) Financing

Manufacturing loans provide working capital to businesses that have outstanding purchase orders and need to have the materials or labor needed to complete those orders. The lender will verify the order quantity, confirm if there are enough resources to complete the work and then purchase the materials or payroll on behalf of the business. Typically, the lender will then bill the customer through the business’s standard payment process, making this a true operating finance solution.

Term Equipment Loans

This type of financing is offered by banks, equipment dealers and credit unions. The loan amount is usually based on the value of the equipment or machine and may be secured by a lien on the equipment itself. This is a great option for a business that needs to replace or upgrade equipment, as the financing can be obtained relatively quickly and with minimal hassle.

Invoice Factoring or Merchant Cash Advance

This is a financing option that allows businesses to receive a fast infusion of cash from a lender, often backed by future invoices or sales. This is a useful tool for manufacturing companies that are experiencing rapid growth or need to manage cash flow as they wait on receivables from customers.

Alternative Lending

There are a number of alternatives to traditional business financing, such as online lenders that offer short-term loans and lines of credit. These can be helpful for manufacturing companies that are looking to avoid long application processes and red tape. These lenders can also be a great choice for manufacturing companies with less than perfect credit, as they often have more flexible eligibility requirements.

It is important to remember that any kind of financing comes with a cost. It is important to analyze your financial situation and make sure that you can afford to repay the loan on time each month. Additionally, you should always shop around for the best deal possible. If you do not compare pricing, you could end up with a much higher interest rate than you would have otherwise qualified for. Taking out too many loans can also damage your business’s credit and impact your ability to obtain credit down the road. Be sure to weigh all of these options carefully before choosing the one that is right for you.

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