Options for manufacturing business loans
Given the importance of manufacturing, it’s crucial that these businesses get the finance they need to develop and grow. Here we’ll cover some of the finance options available for manufacturing companies, especially small to medium businesses that can find it difficult to get a manufacturing loan.
Traditional bank term loan
For a manufacturing company that has been in business for a while and has a solid track record, a bank term loan could be the answer. A business term loan for manufacturing is usually suitable when you have a fixed amount that you want to borrow. This could be for a specific purpose such as to buy machinery or equipment.
Getting this type of manufacturing loan can be a challenge as you will be required to complete and submit a large amount of paperwork. This will include your Balance Sheet, Income Statement, Cash Flow Statement. In some cases, the bank will want to see a business plan that outlines how the funds will be used. Besides the paperwork, the main shortcoming of a bank term loan is the time it can take to get approved, which can range from a few weeks up to three months. If you are not approved, you will have wasted time waiting for an answer.
Despite the drawbacks, this type of manufacturing loan has several advantages. For one, the interest rate can be very competitive, especially if it’s a secured loan. You can choose a bank term loan with a fixed or variable rate. Some bank term loans offer flexible payment options.
A business overdraft can be an easy solution when looking for a manufacturing loan. With a business overdraft, you are able to run a negative balance on your standard business transaction account. You are only charged interest on what you use and pay back the amounts borrowed when you get more money into your account. For example, if you are approved for a business overdraft up to $20,000 and are only using $10,000, you are only charged interest on the $10,000. Once your account goes back into a positive balance, you are no longer charged interest. However, business overdrafts usually have regular fees attached even if you are not drawing from the funds available. These are small but can add up over time.
A business overdraft is suitable for short-term finance needs of manufacturing businesses, such as managing cash flow. For an established manufacturing business with a good financial record with a bank, a business overdraft can be approved in less than a week. The interest rate will vary depending on whether the overdraft is secured on unsecured – with the interest rate for an unsecured business overdraft usually around 1.5 times higher than for the secured one. Several banks offer unsecured business overdrafts up to $50,000 and require security for larger amounts. Learn more about business overdrafts.
Business line of credit
A business line of credit loan is a flexible option for manufacturing business finance. You get a maximum amount you can borrow but, like a business overdraft, you only pay for the money you are using. Unlike a business overdraft, the line of credit is separate from your business transaction account. Business lines of credit are usually secured by residential or commercial property. A business line of credit can be beneficial to meet short-term cash flow requirements.
With an equipment finance loan you take ownership immediately, and the equipment or machinery you purchased acts as security for the finance. Also called a ‘chattel mortgage’, you make regular fixed payments with an equipment finance loan, with the term usually between three and five years. This type of loan is appropriate when you have machinery or equipment that you want to purchase that will enable you to generate extra funds in the business.
Online unsecured business loan
Online unsecured business loans have been growing in popularity as manufacturing loans due to the ease and speed of obtaining them. With an unsecured online business loan, you are not required to complete large amounts of paperwork, as with a business term loan. Instead, you complete a short application online while the lender safely and securely analyses your recent bank transactions to determine approval and the amount of the business loan. The entire approval process can take up to 24 hours. Once approved, the funds are transferred immediately into your account.