The manufacturing industry has evolved in recent years, thanks to new technologies, methods and consumer needs and demands. Even so, one fact remains the same: manufacturing and distribution is a capital-intensive industry with large capital expenditures. Because manufacturers are also typically required to meet their capital needs before invoicing and receiving payment, many companies fall short when it comes to their cash flow.
At some point, many manufacturers – both large and small – require financing to bridge the gap between receiving a new order and securing payment from customers. They generally then use these funds to fulfill new orders, cover day-to-day costs, boost cash flow, buy materials and purchase machinery and equipment. From emergencies and opportunities to expansion and rapid growth, there are also multiple scenarios in which a business might seek additional capital.
Finding the right source of funding is the key to meeting your manufacturing company's short-term needs and preserving its long-term financial health. To help you get started, the team at Security Business Capital has put together a list of six financing options for solving different financial challenges.
Invoice factoring allows businesses to use their outstanding accounts receivable to generate immediate capital. Essentially, your manufacturing company is selling its unpaid invoices to a factoring company (the factor) at a discount. The factor will then quickly advance up to 80-95% of an invoices’ value, known as the “advance rate”. Once the factor collects payment from your customer, you receive the remaining balance, minus a small fee. The amount available through factoring is only limited by the number of eligible invoices you have to factor, allowing you to secure unlimited funding potential. Since invoice factoring is not a loan, there is also no debt or interest for your business to repay.
As the name suggests, equipment financing refers to a loan used to purchase business-related equipment like machinery, tools, furniture, fixtures and vehicles. With this option, the equipment itself serves as collateral against your debt; this allows the lender to fund up to 100% of the value of the equipment, so you can put it into use immediately. If you have a high credit score, you may also be able to qualify for $0 down financing, although some lenders require 20% down payment. Once your loan has been repaid, the equipment then belongs to you to keep, sell or trade.
SBA loans are guaranteed by the U.S Small Business Administration – up to 85 percent in some instances - and provided by intermediary lenders like banks, credit unions and nonprofit organizations. This arrangement reduces the risk for the lender, increases the chances for approval for the borrower and drops interest rates to one of the lowest on the market. Loan amounts can extend up to $5 million in some instances, making them popular for large expenses like business expansion, land development and facility improvements and upgrades. With competitive repayment terms ranging from 5-25 years, only the most creditworthy borrowers qualify.
Line of Credit
Instead of a one-time infusion of cash, this option allows you to draw from your credit line as often as you need for an amount within your set limit. This pre-approved sum of money can reach upward of $1 million for the most eligible businesses, and you only pay interest or fees on the used portion of the credit line. Manufacturing companies often use this option to make multiple purchases over a period of time and seize opportunities – any situation in which they are unsure of the exact amount they need. One of the advantages of this solution is that, as you pay back what you borrowed, your credit line is replenished up to the amount originally approved.
Merchant Cash Advance
A merchant cash advance, also called a business cash advance, is designed as a short-term financing solution. With this option, your manufacturing company receives a lump sum of cash in exchange for a portion of your business’ future sales. Once you have been approved, your business then pays back the advance in daily or weekly installments, which are deducted as a set percentage of daily sales. The typical repayment period for a cash advance is 9 months, but the term can fall anywhere between 3-24 months. While merchant cash advances do provide quick cash, it is also associated with incredibly high rates and fees.
Security Business Capital’s Manufacturing Factoring
More and more manufacturing companies are utilizing invoice factoring services to secure same-day funding, maintain positive cash flow, avoid unnecessary debt, cover day-to-day costs and invest in their business and team. The flexibility factoring provides can also help carry your business through unexpected changes and challenges. If you need to boost your manufacturing companies’ working capital to cover day-to-day costs, consider partnering with Security Business Capital. The dedicated team at Security Business Capital has years of experience in providing cash flow solutions that are both flexible and customizable.
To learn more about how our invoice factoring services work and how Security Business Capital can help your business grow, reach out today for a free quote and/or consultation.