Manufacturers can run into cash-flow problems for a number of reasons. Overhead expenses could be exceptionally high. Customers can take a long time to settle their accounts. Orders may fall through, causing manufacturers to have excess inventory on hand. The cost of supplies and materials can shoot up unexpectedly. An accident could occur, causing a company to incur a lot of unbudgeted expenses. The list goes on and on.
When cash is tight, many manufacturing-business owners look for outside sources of financing. As they begin their search for small-business loan options, business owners quickly realize they have a lot of different financial vehicles to choose from.
Let’s take a look at five of the more popular small-business loan options to determine which one makes the most sense for your manufacturing business.
Loans from traditional financial institutions
Manufacturing businesses that have great credit scores and are asking for large sums of money may very well qualify for a small-business loan from a traditional banking institution. They just need to be lucky. In the aftermath of the 2007–2008 financial collapse, banks are approving fewer small-business loans. In fact, 78.7 percent of small businesses have their loan applications denied by big banks. If you choose to go this route, be prepared to endure a long application process that requires you to submit a ton of paperwork. In the unlikely event you’re approved, it may take as long as 60 days for funds to be sent your way.
Selling equity to investors and venture capitalists
You can always opt to sell a stake in your manufacturing business to angel investors and venture capitalists. Yes, you won’t have to make monthly installment payments or incur interest fees. And in the event your business tanks, you won’t have any liabilities to repay. But keep in mind that these shrewd investors do not like losing money. So in addition to having to sell a slice of the business you’ve built, you will also lose some control over your company and will have to consider your investors’ opinions as you make decisions. Depending on how big a stake you sell, you may even have to follow their direction.
Merchant cash advances
If your manufacturing business accepts credit card payments, you may be able to find funds through merchant cash advances. Essentially, you agree with a lender to borrow money at a fixed rate. The merchant then takes a portion of your credit card sales until the loan is repaid. On the plus side, when business is slow, you won’t have to worry about being unable to make an installment payment, because the lender takes a fixed percentage of your receipts. But merchant cash advances are known to be prohibitively expensive; there are often a number of hidden fees attached to them. So do your due diligence to understand how much you’re expected to repay prior to signing a contract.
Business lines of credit
A business line of credit is essentially a credit card for your company. This financing option is also known to be on the more expensive side of the spectrum, as business lines of credit generally have a number of fees attached to them. Lenders typically require businesses to submit a number of documents when applying for a line of credit, including cash-flow statements and tax returns. While a business line of credit is a versatile financing option, you may ultimately find you’ve spent your entire credit line and might have a hard time repaying it—particularly when business is slow.
Loans from non-bank lenders
While traditional banking institutions have decided to loan fewer and fewer dollars to small businesses, many non-bank lenders have arisen to meet the growing small-business lending demand. Unlike most banks, non-bank lenders offer unsecured loans that don’t require you to put up any collateral. What’s more, alternative lenders will even finance companies with less-than-optimal credit scores—something banks rarely, if ever, do. For these reasons, loans from non-bank lenders often have higher interest rates than loans from banks—understandably. Loans from non-bank lenders are also more versatile than many other forms of financing. You can use them however you see fit. As an added bonus, the application and approval processes for loans from alternative lenders are streamlined. You can complete an application in 15 minutes or less. Once you’re approved, you can have access to capital in as quick as 24 hours.
If you’re in the market for a small-business loan for your manufacturing business, you’re in luck: Capital Alliance has you covered. We fund small businesses up to $1 million, and we also offer repeat customer benefits. So repay your loan installments on time and it’ll likely be cheaper to borrow money the next time you need it.
If you like what you hear, what are you waiting for? Apply for a loan today!