How to Finance Your Manufacturing Business

How to Finance Your Manufacturing Business

Small manufacturing businesses are a diverse and evolving driver of the U.S. economy. In fact, according to the National Association of Manufacturers, for every $1.00 spent in manufacturing, another $1.89 is added to the economy, proving that this sector continues to thrive.

While the opportunities are tremendous, most entrepreneurs face a primary challenge in funding their manufacturing companies, as they tend to be more expensive to get off the ground than many other types of small businesses.

Excelsior Growth Fund (EGF) has helped numerous manufacturing businesses access financing to grow, expand, and take advantage of new opportunities. Here are just a few steps you can take to find the right lender and types of funding for your manufacturing business:

Step 1: Determine your manufacturing business’s financing needs

Essentially all manufacturing-based small businesses will need financing to start up and grow. Without it they risk being underfunded, which means they don’t have the money needed for day-to-day operations, to invest in new opportunities or to increase market competitiveness.

Most manufacturing businesses seek out loans for these key financing needs:

Working capital: Loans for working capital are used to finance everyday operations of a company. Working capital can be calculated by subtracting a business’s current short-term liabilities from its current assets. Current assets include on-hand cash and things that are easily converted into cash, like inventory and accounts receivable. Current liabilities are primarily loans due within a year and accounts payable.

Many small manufacturing businesses turn to EGF when they are in need of a working capital boost. For instance,Maria Boustead owner of Po Campo, a bike bag manufacturing business, used her EGF loan to make the switch to a more sustainable factory. Through her working capital loan, Maria was able to get the financing she needed to secure a business relationship with a sustainable partner to produce her products.

Equipment: Manufacturing equipment eventually needs to be replaced. New or used equipment may be purchased to replace an older model or upgrade with more efficient equipment. For example, after being awarded a large and lucrative government contract, Advanced Automation Corporation, a systems-engineering and manufacturing business, received an EGF loan to purchase the equipment they needed to fulfill their contract.

Expansion and growth: As your business grows, you may need money for additional inventory, staff, marketing and more, as well as to scale up your company’s capacity to bid on larger projects and contracts.

When Anita Shepard, owner of vegan yogurt manufacturer Anita’s Yogurt, needed a loan to expand her business, she turned to EGF. Anita used her loan funds to redevelop products that are now scalable for large-batch production.

Step 2: Explore lender options

Once you have determined that you‘re ready to seek financing, it’s important to explore and research the different financing options available. To help you get started we’ve outlined some key small business lending sources for manufacturing businesses.

  • Banks: Banks are the first place to turn for financing as they can usually offer lower interest rates than many other sources. Talk to your commercial-banking representative, ask for advice and be responsive to questions or concerns. This will help you be better prepared when the time comes to apply.
  • U.S. Small Business Administration (SBA): While the SBA doesn’t make loans directly, it does support small businesses by making it easier for banks and other lending institutions to make loans to new and expanding businesses.

    With loans that go as high as $5 million for qualified borrowers and eligible businesses, SBA-backed programs are often exactly what small business borrowers need, including manufacturing operations that have much higher startup and early-stage costs. EGF offers SBA loans up to $50,000 through the SBA Microloan program. For loans over $50,000, EGF’s affiliate The 504 Company offers SBA loans for manufacturers looking to purchase machinery,  equipment, or commercial real estate.

  • Community Development Financial Institutions (CDFIs): CDFIs, like EGF, are mission-driven, non-profit lenders that often have more flexible requirements to offer financing and other small business support. EGF’s SmartLoan® is one of our most popular products, offering borrowers up to $100,000 with quick, online applications, decisions in 48 hours and access to funds in about five business days.

Step 3: Learn from other successful manufacturing businesses – and from EGF’s experience

EGF and our affiliates have funded several manufacturing businesses in a broad diversity of industries. In addition, we have experience with programs that support manufacturing-based entrepreneurship in the New York City metro area and those that aim to export their products.

Contact EGF today

EGF’s Business Advisors have the experience, relationships and knowledge needed to help you succeed, and we offer access to numerous loan programs. We also offer a broad range of support services to help small business owners achieve success, like assistance with business plans, financials and marketing. When you’re ready, contact us to learn how we can help.