Overcome Small Business’ Cash flow Issues with Manufacturing Loans

Entrepreneurs who are operating small businesses in the manufacturing sector of the economy manufacture a wide range of products for the community. These could include consumer durables, industrial machinery, perishable commodities, and even electrical components. They need to maintain a steady and continuous cash flow depending on the scale of their operations. Only then can they upgrade their equipment, refresh inventory, pay their workers, and clear their tax liabilities. Many of these entrepreneurs even require the money to take advantage of securing new business contracts. Unfortunately, most of them cannot raise enough capital through bootstrapping. They have to rely on debt funding to meet their business needs.

How do manufacturing loans help?

The financial needs of entrepreneurs running small manufacturing businesses are dynamic. The conventional business loans which most commercial banks offer them normally do not meet their requirements. They have the option to resort to other schemes which are available to them. These include invoice factoring, accounts receivable financing, asset-based financing, business line of credit, equipment financing, or term loans. However, lenders of these schemes have the own stringent requirements. These financiers even insist the entrepreneurs use the funds only for specific purposes. This is why many of them opt to apply for manufacturing loans to meet their financial needs.

Manufacturing loans are lending schemes that large financial institutions offer entrepreneurs running small manufacturing businesses. They can then use the funds from the scheme to:

  • Overcome their business cash flow issues,
  • Acquire or upgrade their current machinery or equipment,
  • Buy or refinance industrial real estate,
  • Streamline and automate their existing supply chains, and
  • Hire new workers to meet their business expansion demands or finance payroll.

Distinctive features

Most manufacturing loans that are available to the entrepreneurs differ from conventional business loans in the following aspects:

  • Flexible repayment options,
  • The rate of interest rate chargeable on these loans are generally nominal,
  • The tenure of the loan will depend on the purpose for which entrepreneurs will use the funds, and
  • The entrepreneurs can claim a tax break under IRS Section 179 if they use the loan for purchasing new equipment.

Eligibility requirements

Entrepreneurs need to fulfill the following eligibility requirements before most financial institutions consider sanctioning them manufacturing loans:

  • They need a business credit score of over 500 to prove their creditworthiness,
  • Provide legal documents proving they been conducting their business operations for a specific period of time,
  • Provide certified audited financial statements showing the annual revenue exceeds a specific sum of money,
  • Provide copies of audited annual accounts for a specific number of previous years which a CPA certifies,
  • Submit copies of legal documents such as the Memorandum and Articles of Association describing their business, and
  • Submit copies of recent monthly bank statements relating to their business.

Availing manufacturing loans enables entrepreneurs of small manufacturing businesses to conduct their operations smoothly. They can use the funds from this lending scheme to resolve many of their cash flow issues. However, they need to select and work with the right financial institution. This financial institution should have a good market reputation and experience in providing these loans. Above all, it should charge competitive interest rates, and its eligibility requirements should be lenient for them to apply without problems.