Manufacturing Loans: Best Options to Consider in 2024

Manufacturing businesses must manage their supply chain and inventory in the most efficient way possible to save time and money. To do so, manufacturing companies need to invest in state-of-the-art equipment and top-quality materials.

Also, you may face cash flow issues, if you allow your customers to extend their payment terms. That can make it difficult for you to run and grow your business. In addition, since manufacturing is a highly competitive, ever-evolving industry, you’ll need ample cash to pay for skilled talent that can take your products to new heights.

There is no shortage of small business loans for manufacturing companies on the market. Since each option has its own pros and cons, it’s important to compare them before you move forward with any product.

In this review, our experts highlight each the rates, fees and terms of each lender and explain what makes them a good option. We also share potential downsides of each lender, and provide a rating methodology you can use to select the best option for your needs.

Best Manufacturing Loans for 2024 - Full Overview

How to Choose the Best Best Manufacturing Loans

• Loan features: Loan features refer to loan terms, loan amounts, and repayment plans. Some lenders pride themselves on lengthy repayment terms, large loan amounts, and flexible repayment plans, which are ideal if you’re in manufacturing. Others are known for shorter terms, smaller loan amounts, and repayment plans with fewer options.
• Application process: Many lenders offer online applications you can complete quickly, within minutes. You might even be able to prequalify and check offers before you formally apply, without any impact on your credit score. 
• Interest rates and fees: Interest rates and fees like origination fees and late fees can vary significantly from lender to lender. Some lenders offer minimal to no fees and lower the cost of borrowing for you as a manufacturing business owner.
• Qualification process: Most lenders will require you to meet certain minimum credit score, annual revenue, and business history requirements. Some are more lenient and cater to new manufacturing business owners.
• Customer support: Customer support can be in the form of live chat, emails, or phone  conversations. It may also involve a robust FAQ section or self-serve help page on the lenders’ websites.
• Online user reviews: All lenders say their loans are great. However, unbiased reviews and ratings on third-party review sites like Trustpilot and Better Business Bureau (BBB) reveal a lender’s true reputation and value.
• Perks and bonuses: While perks like credit score monitoring and hardship assistance are attractive, especially to borrowers in the challenging manufacturing industry, they’re only offered by select lenders.

What Are the Costs of Running a Manufacturing Business?

If your business manufactures a product or line of products, you can expect these costs.

• Raw materials: Also known as direct materials, raw materials are anything you buy from other companies so that you can produce your own products.
• Direct labor: Direct labor refers to the employees you hire who work directly on your production line. They might operate equipment and transport raw materials and finished products in and around the plant and warehouse.
• Fixed overhead: These costs don’t increase or decrease as the number of products you produce goes up or down. Property taxes and employee salaries are a few examples.
• Variable overhead: Variable overhead costs fluctuate as your activity increases or decreases. Utilities to run the plant, raw materials, and shipping and handling fees all fall into this category.

How Can Manufacturing Companies Use Business Loans?

The most common purposes for manufacturing loans include:

• Commercial property: You may want to invest in a plant or warehouse so that your employees can comfortably manufacture enough products to meet the demand. If you have a current property, you can also secure financing to renovate or expand it.
• Equipment: You’ll need equipment to run your plant and produce your products. You can use a loan to fund new or used manufacturing equipment such as drilling machines, lathes, gear shapes, and milling machines.
• Working capital: Since the manufacturing industry is prone to cash flow shortages, a manufacturing loan is a great way to cover working capital needs like payroll, materials, and insurance.
• Marketing: Marketing can help you land new customers and retain current ones. With manufacturing financing, you’ll be able to pay for a new website, brochures, online ads, and other marketing initiatives.
• Employees: If you own a manufacturing business, you know that your employees are your greatest assets. You can use a manufacturing loan to recruit and train an experienced, talented team of workers.
• Emergencies: In a perfect world, you’d be able to plan for every expense your business incurs. Since this isn’t the case and emergencies are bound to pop up, manufacturing financing can give you some peace of mind.

Types of Loans For Manufacturing Businesses

In addition to the business loans we discussed above, consider these options for your manufacturing business.

• SBA Loans: Partially guaranteed by the U.S. Small Business Administration, SBA loans offer low interest rates and longer repayment terms. There are several SBA loan programs you can choose from such as 7(a) loans, and 504 loans. In most cases, you need strong credit and sufficient revenue to get approved.
• Equipment financing: Equipment financing is just what it sounds like: financing for manufacturers that’s specifically designed to pay for new or used equipment. These loans are backed by the equipment itself so they’re easier to qualify than other products.
• Invoice factoring: Invoice factoring is when you sell your invoices for immediate cash. Typically, a factoring company will invoice you 85% to 90% of your unpaid invoices.  Once they collect payment from your customers, you’ll receive the remaining balance minus the factoring fee. 
• Merchant cash advance (MCA): An MCA offers funds in exchange for a percentage of your debit and credit card transactions. You’ll receive payments daily as your manufacturing business gets paid. The total amount you’ll repay will be based on the factor rate.

How to Qualify for a Manufacturing Business Loan?

To position yourself as an attractive borrower and increase your chances of getting approved for a manufacturing business loan, follow these tips.

• Finalize your business plan: Most lenders will ask you for your business plan so they can learn more about your manufacturing business and what you intend to do with the loan proceeds. Make sure your business plan is in tip-top shape before you apply for loans.
• Improve your credit: The higher your credit score is, the more likely you are to land manufacturing loan offers with competitive rates and favorable terms. Do your best to improve your credit by making timely payments, keeping debts low, and increasing your credit limits.
• Check your online presence: It’s common for lenders to do their due diligence when they review your application. Take a closer look at your company’s presence on social media and review sites. Respond to negative reviews and remove any content that doesn’t position you in the best possible light.
• Do your homework: While it may be tempting to apply for the first manufacturing loan you find, doing so can lead to a denial or sky-high interest rates and fees. Shop around, compare lenders, and only apply to loans with requirements you meet.

How to Apply for Manufacturing Business Loans

Here’s what you need to do to apply for manufacturing business financing.

• Shop around: Explore various lenders and loans so you can find the ideal options for your unique business goals.
• Gather your documents: Make sure you have certain documents and information like financial statements, a business plan, your tax ID number, and bank statements on hand.
• Fill out the application: Most lenders will allow you to apply for a manufacturing loan online and upload your documents electronically. Double check your work before you hit submit to avoid delays in the approval and funding process.

Bottom Line

The manufacturing industry is essential to the U.S. economy. With the help of manufacturing business loans, you can succeed in it and stand out among larger companies. Just make sure you have a solid business plan in place and experienced, hard-working personnel to help your venture run smoothly and grow.

*The required FICO score may be higher based on your relationship with American Express, credit history, and other factors.