SBA Loans for Manufacturing Companies
Sba Loans for manufacturing companies are often misunderstood. They can help a manufacturing company scale, purchase a new office or manufacturing facility, consolidate debt, purchase new equipment, and provide a significant amount of operating capital. SBA Loans for manufacturing companies are misunderstood because of how many options exist.
Manufacturing SBA Loan Options
Working capital
SBA loans for manufacturing companies who need $350,000 and under are usually the easiest and require the least amount of collateral of all the SBA loan programs. They also take the least amount of time to close, typically in under 20 business days. The requirements for working capital SBA Loans under $350,000 are pretty simple. Manufacturing company owners typically need a credit score of 680 or better with 2 years in business and have to show the business can support the monthly payment.
The interest rate is prime plus so at the present time December 2019 the rate is usually around 8% over 10 years. This is a great loan to consolidate business debt, purchase equipment, add staff, and use for expansion. I would recommend using a line of credit for shorter term capital needs like marketing, inventory and supplies.
In order to apply for a manufacturing SBA loan you would need a one page application, 6 months of business bank statements, prior 2 years of business and personal tax returns, prior year business financials(Profit & Loss with a Balance sheet), current year financials through the most recent month and a debt schedule.
Manufacturing SBA Loans for purchasing a new location would fall under the SBA CRE(commercial real estate) program. The idea of using this is to purchase the new facility and have the mortgage on the purchase come in lower than the rent you are currently paying. This makes the approval process much easier. The other benefit is that instead of paying rent on a monthly basis you are paying off a mortgage to a property you currently own and are building equity in. The property you are purchasing must be occupied at least 51% by your manufacturing company. The other 49% can be rented out if you don’t need the additional space and would like rental income. The SBA CRE program terms are usually cheaper than the working capital SBA loan. The term of the SBA CRE program can extend 20-30 years based on the qualifications and the preference of the manufacturing company applying. The requirements of an SBA CRE program are similar to the working capital SBA loan. Manufacturing business owners need 680 credit or better, need at least 2 years in business and must be able to demonstrate that their current business can handle the monthly payment. An easy way to do this is to pick a property where the mortgage payment would be equal to, preferably less than their current rent expense. In order to apply for a manufacturing SBA CRE loan you would need a one page application, 6 months of business bank statements, prior 2 years of business and personal tax returns, prior year business financials(Profit & Loss with a Balance sheet), current year financials through the most recent month, a debt schedule and the purchase and sale agreement for the property in question.
Manufacturing SBA Loans that are over $350,000 and aren’t used to purchase commercial real estate are typical used to consolidate debt, purchase equipment, increase capital, and expand the business. These SBA loans require collateral. Collateral used for these programs can be real estate, equipment and personal assets. These usually take a little longer to obtain as the can take 20-30 business days to close. The manufacturing applicant needs a credit score above 680, they have to be in business at least 2 years and show that the business can handle the monthly payment. Underwriting will look at the financials of the business and the tax returns provided to understand the businesses ability to service new debt. The more profit a business shows with it’s financials and their tax returns the more they should be able to qualify for. In order to apply for a manufacturing SBA loan you would need a one page application, 6 months of business bank statements, prior 2 years of business and personal tax returns, prior year business financials(Profit & Loss with a Balance sheet), current year financials through the most recent month, an asset sheet(list of all assets the company owns), and a debt schedule.
Is a manufacturing SBA loan right for your business?
To figure that out you have to think about what you are using the funds for and how much you can potentially qualify for. To keep the analysis simple ask yourself is this a short term need or a long term expenditure. If it’s a long term expenditure and you qualify than you should apply for an SBA loan. If your consolidating debt into a lower payment and a lower apr it make sense to move forward an obtain an SBA loan.
The best way to figure out if financing makes sense for your manufacturing business is to compare the cost of capital to the overall return of investment. Here’s an example to demonstrate what you should look at. Let’s say you want to get a working capital SBA loan for your manufacturing company for $350,000. Your business currently does $100,000/month and you’re profitable. You plan to use $200,000 for equipment purchases, $100,000 to consolidate debt with a current monthly payment of $5,000 and you plan to use $50,000 to increase your working capital. The equipment allows you to increase revenues 20% so now you make an additional $20,000/month and $240,000/year. In this example the you take the SBA loan. The terms are $350,000 at 8.5% apr monthly payments of $4,339.50 for 10 years. The overall cost of the loan will be $170,739.89 if it’s paid off as scheduled. This loan allows you to make an extra $240,000 each year for 10 years when you compare that to the cost, the return on investment far exceeds the cost of capital. When you look at the increase in cash flow and the $5,000 monthly debt payment that is being paid off compared the the payment of $4,339.50 of the SBA loan the increase in cash flow far exceeds the payment of the SBA loan. This situation makes it a wise decision to move forward. All business financing should be analyzed looking at those metrics.
