Manufacturing Business Funding: You Have Options

Welcome to Manufacturing Solution Center. Our mission is to discuss and dissect all manufacturing business funding strategies on this site and help you scale your manufacturing business. Let’s dig into the reasons why manufacturing companies use financing:

Manufacturing business funding is used to speed up receivables, purchase equipment, expand infrastructure, buy raw materials, marketing and increasing staff. All of these uses ultimately lead to an increase in scale and growth for the manufacturing company. Let’s break down each use and the correct program to use in each situation.

Here are the most common manufacturing business funding programs:

-Invoice Factoring

-Equipment Financing

-Merchant Cash Advances

-Lines of Credit

–Manufacturing SBA Loans

Invoice Factoring

Let’s start with invoice factoring. The delay or gap from when materials are bought, products are produced and delivered and the company is ultimately paid can be 30, 60, 90 days or even longer depending on the product. This makes it challenging to bring on more clients, which ultimately causes slow growth. It also puts the manufacturing companies at risk if a client is behind in their account payables. The solution is invoice factoring. This is a type of manufacturing business funding where the company sells their invoices to a factoring company and can be paid within 24 hours of invoicing their clients. 

This transaction is set up quickly and easily. The factoring company buys their client’s invoice, funds the manufacturing company and the factoring company collects payment from the manufacturing company’s client. For more information on invoice factoring, watch this video. 

Setting this program up is an easy and long term solution to scale your manufacturing business. Once factoring is set up, it allows the business to take on more clients at a much faster pace because they are no longer waiting 30-90 days to be paid. It also allows the company to take on larger clients. The process to apply for invoice factoring usually takes 3-5 business days. A term sheet can be issued in 12-24 hours then the factoring company will conduct their due diligence process. 

Once approved, new invoices can be uploaded or submitted and funds will be deposited into the account within 24 hours. Typically, the company must submit a one page application, articles of incorporation, a detailed accounts receivable report and a sample invoice. If the manufacturing company is currently factoring they will have more leverage by sending in their current agreement. Terms are usually 1-2 years and it is wise for a company to check any early termination fees in the fine print of the agreement they previously signed before trying to switch to a better agreement for this manufacturing business funding solution.

An added benefit is that the factoring company takes over most, if not all, of the collection process, which frees the owner to focus on generating more revenue. Another key benefit is that the manufacturing company itself isn’t the main deciding factor when invoice factoring is needed, the factoring is based on the manufacturing company’s client. This means you can factor your invoices and scale your business with less than stellar credit, which is an appealing manufacturing business funding solution. 

Equipment Financing

Equipment financing helps manufacturing companies stay ahead of schedule and increase production without having to always add staff. Purchasing the most up to date and correct manufacturing equipment is critical to the success of a manufacturer. It reduces outsourcing, increases margins, protects against downtime in assembly and more. Capital expenses such as these give the manufacturing company the best return on investments. Unfortunately, most manufacturing equipment is costly; equipment financing is a simple and easy manufacturing business funding solution. Equipment financing is a simple transaction that a company can use to purchase, new or used, manufacturing equipment and finance it for up to five years.This allows the manufacturing company to pay monthly installments over time instead of coming out of pocket for the equipment and being short on cash. 

Equipment financing can take 1-5 business days. Manufacturing business funding for equipment financing requires companies to submit a one page application and the invoice or purchase and sale agreement of the equipment they are purchasing to the lending institution if the amount of the equipment is under $100,000, in most cases. For equipment purchases totaling over $100,000 it is standard practice to submit the prior 6 months of business bank statements, most recent business tax returns, business financial statements (profit & loss with a balance sheet) to a lending institution for consideration. Underwriting is based off of credit (business & personal in some cases), the value of equipment and the company’s ability to repay the debt. It is recommended that the owner have above a 650 personal fico score. The equipment is used as collateral. For more information on equipment financing, go to and watch the video. 

Merchant Cash Advance

For shorter term capital needs, such as marketing or buying raw materials, there are several manufacturing business funding solutions. For companies with a shorter time in business or less than stellar credit, a merchant cash advance is recommended. A merchant cash advance or MCA for short is the quickest and easiest program to qualify for. Unlike equipment financing, MCA’s typically have 6-18 months terms and have daily or weekly payments. 

These are based on the company’s cash flow, time in business, credit score and other factors. The programs do not carry an interest rate as it’s technical purchasing the applicant future sales at a discount. It is based on a factor rate, for example if a company is approved for $100,000 over a 6 month estimated program with a factor rate of 1.26 the company would pay back $126,000 ($1.26 for every dollar advanced) with either $1,000/Monday-Friday payments or a $5,000/weekly payment. The typical application for this manufacturing business funding solution can take 1-3 business days to fund, and the application would usually attach the following documentation to the finance institution:1 page application, previous 6 months of business bank statements, previous 4 months merchant statements(if applicable), driver’s license, voided check, lease, and proof of ownership. 

The benefits of this program is the speed of the transaction, the high approval rates, and the flexibility of the program. These are more expensive than traditional financing and are only recommended if the company applying stands to make significant money by using these funds. One suggestion is to request prepayment incentives which allow the company to pay the funds back early in exchange for a discount.

Lines of Credit

More established companies can use a line of credit to finance short term capital needs as a manufacturing business funding solution. Lines of credit have simple interest and either weekly or monthly payments. Manufacturing companies in business at least two years, with at least $30,000 a month in revenue with strong average daily balances have the best chance of obtaining a line of credit. The owners personal credit has to be above a 650 fico score and any existing MCA’s could impact their ability to obtain a line of credit. Manufacturing companies can apply for a line of credit by completing a 1 page application, submitting their previous 6 months of business bank statements and their most recent business tax return to the lending institution. A line of credit can be established is 1-3 business days and builds the company’s business credit. 

The advantage of a line of credit is that it can be drawn upon at any time it’s needed, provided there is equity in the line. For example if a company is approved for a line of credit of $200,000 and only needs $25,000 to purchase raw materials now they draw $25,000 and they have $175,000 of available credit or equity for their future use. Lines of credit are typical 6, 12 or 18 month terms and if they are paid early all future interest is waived. These are ideally used for short term capital needs.

Manufacturing business funding solutions vary according to the lending institution. It is vital to the health of manufacturing company to use the right solution for the task at hand. Having the right financing solutions in place allow manufacturing companies to grow and scale at a much faster rate. Companies looking to grow quickly should have both invoice factoring and a line of credit established. If a company needs to purchase equipment they should use equipment financing and only resort to an MCA in case of emergencies. Companies searching for manufacturing business funding should apply using this resource tab as we have vetted these sources and know they will provide the best solutions possible without application fees.