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The Business of Manufacturing: Loans & Financing | L3

The Complete Guide to Manufacturing & Factory Loans

The manufacturing process is complex, and starting a manufacturing business requires a high level of investment. Luckily, factory loans can help you get your new venture off the ground.

Taking into account overheads, raw materials, factory costs and equipment, it’s not uncommon for manufacturers to spend hefty six-figure sums to just get started.

Let’s jump into how to start a manufacturing business with no money and how to get approved for manufacturing loans that can help you make it happen.

What are Factory Loans?

A factory loan is a type of installment loan. You take out a lump sum for a predetermined period and make regular monthly repayments. With the cost of starting these types of businesses, production loans are not just an optional extra. They’re a requirement.

You can take out manufacturing loans for any business purpose, from sourcing the heavy equipment necessary to start manufacturing goods to the raw materials required to launch your first production line.

Common Costs of Running a Factory

When taking out a manufacturing business loan, you need to have a plan for what you’re going to use it for. Lenders specializing in these loans will want to see a comprehensive business plan and the reasoning behind why you need manufacturing financing in the first place.

So, what are the most common costs associated with running a factory?

  • Raw Materials – Everything from steel, wood, and oil is required to create your finished products. These are one of the most significant ongoing expenses incurred by factory owners.
  • Labor – Everyone from unskilled laborers to highly skilled craftspeople is required to keep a factory running. Experts command higher salaries, which can eat away at any struggling cash flow.
  • Equipment – Most manufacturing processes require heavy equipment. High capital investments are the primary consideration for startups in this sector. You also need to consider the repair and maintenance costs of the equipment.
  • Overhead – Finally, you have overhead expenses. These include everything from cleaning costs to employee benefits. Overheads are another significant ongoing expense you’ll have to meet.

Add everything together, and you’ll quickly see that starting a production facility amounts to some hefty costs. Business loans for manufacturers help you start your factory and give you the financial cushion you need to make it through those initial few years.

Types of Manufacturing Financing

There’s no single type of production financing. You’ve got a variety of manufacturing finance solutions available to you. The best lending option for you largely depends on what you need the money for and which lenders you qualify for.

Let’s take a closer look at the different factory loans available to you.

Business Line of Credit

Obtaining a business line of credit allows you access to a constant stream of revolving financing. You only pay back what you borrow, and every time you repay the money, the line of credit automatically refreshes itself.

Factory owners often use business lines of credit as forms of bridging financing or for covering short-term inventory costs.

Short-Term Business Loan

Taking out a dedicated short-term factory loan gives you access to a lump sum to be repaid in three months to five years. These are more flexible but expect higher interest rates.

Short-term business loans are excellent for covering any emergency expenses or expanding your business.

Equipment Financing Loans

Get the heavy equipment you need with dedicated equipment financing. These loans allow you to purchase any tangible asset necessary for running your factory.

Heavy equipment for factories is expensive, so these financing loans could allow you to launch your business and expand when necessary.

Traditional Bank Loans

Approach your bank for a loan and gain access to higher lump sums. Be prepared for a longer application process and a far longer repayment period. Many traditional bank loans for manufacturers may have a repayment period of up to 20 years.

The advantage of traditional bank loans is that you gain access to more competitive interest rates if you have a high credit score.

The Small Business Administration (SBA) Loan Guarantee Program

While not a lender itself, the SBA regularly guarantees loans for qualifying businesses through their work with banks and credit unions. The SBA Loan Guarantee Program will essentially mean the SBA guarantees a portion of your loan.

If you qualify, you can potentially gain access to manufacturing finance options with a personal credit score of at least 680.

How to Get a Factory Loan

What are the steps you need to take to secure factory loans? The application process is generally the same as most other forms of loans. Make sure you read through the lender’s requirements before applying to avoid wasting your time.

  1. Compare and contrast different lending options.
  2. Fill out the lender’s application form. You’ll be asked about your projects, industry, business type, etc.
  3. Provide your recent company accounts (if you are an established business).
  4. Wait for the lender to get back to you. It’s not uncommon for lenders to ask for additional documentation when dealing with such sizable loan amounts.
  5. If accepted, expect your money to land in your business account within a few business days, depending on the lender. If rejected, seek out other lenders and apply with them.

Getting a factory loan relies mainly on tracking down lenders and preparing all your business documentation well in advance. Practically, production financing agents will want to see evidence that you’ve planned ahead.

Tips for Getting Approved for Manufacturing Loans

How do you increase your chances of getting your factory loan application approved?

Follow these tips to get started:

  • Improve your credit score. Your personal and business credit scores can be used to indicate creditworthiness. The higher your score, the more loan options you’ve got.
  • Increase your monthly revenue. Lenders want to see that you’ve got the money to make the repayments comfortably.
  • Boost your cash flow. High cash flows demonstrate that you won’t be left without the money to cover your monthly loan repayment.
  • Make sure you have a comprehensive business plan in place. Lenders want to see what your plan is for growing your factory.
  • Choose your lenders carefully. Review their requirements and only apply to the ones you comfortably qualify for.

Ensuring you get the production loans you need is a matter of hard work and dedication. Keep applying to different lenders and trying other financing options to get the investment you need to start your business.

Finance Your Factory Operations with L3

Starting a business in the manufacturing sector requires considerable investment and a thorough understanding of your business’s needs. Learning about your options and which financing solutions make sense is key to getting your business off on the right foot.

At L3 Funding, we specialize in providing financial resources, merchant cash advances, and more to get America’s entrepreneurs the capital they need to make their business dreams a reality.

Contact us to learn more now or apply for merchant funding with L3.