Manufacturing business loans are an effective way to meet expenses like maintaining your cybersecurity, catering to the wages of employees and paying for utilities. They can also cover other significant costs such as a marketing campaign or a new piece of equipment.
You can obtain such loans by shopping for a lender or lending marketplace that offers agile funding options. Here are some of the reasons that factory owners need them.
Large Purchase Orders
When large orders from commercial clients come in, they usually require a lot of supplies to fulfill the order. If your startup doesn’t have the money to pay for those materials, you could lose a big commercial client. Depending on your business model, you might need to turn down the order or negotiate with the client on payment terms.
A purchase order funding company might help you avoid these problems by lending you money based on the creditworthiness of your buyer, not the credit of your company. You will still need to provide invoices to your customer, but the financing company will hold those invoices until they are paid by your buyer.
You might also be able to get cash from a bank or credit union, but those loans tend to take weeks to process. In the meantime, you may not be able to meet your commercial clients’ delivery deadlines.
You might be able to finance your production costs with production financing, which helps fund raw materials and components for the creation of finished products. This form of financing is commonly used by government contracting firms, light assembly businesses and companies that export under letters of credit from overseas buyers. It has become especially useful as the US-China trade conflict and Brexit have exacerbated supply chain disruptions.
Upgrading Technological Processes
Today, technology is a big part of manufacturing processes in countless industries. It’s not just used for research and development but also to speed up production, reduce costs, and improve quality. Because of this, many manufacturing companies need to upgrade their technological systems. However, this requires a lot of money, especially for small businesses that don’t have enough cash to invest in new equipment and hire the necessary staff to run it.
This is why manufacturing loans have become a crucial source of funding for these businesses. They’re an invaluable way to help a company get over the “valley of death” – the transition from developing to deploying a new improved technology.
It is worth mentioning that the financial system is a key driving force and means to upgrade the industrial structure, as it unblocks the channels of transformation between the capital surplus department and the capital shortage department, smooths manufacturing innovation and financing channels, and regulates the coordinated development of macroeconomic operation and micro-enterprise operations. Furthermore, a sound financial system can promote structural upgrading of the manufacturing industry through various ways, including improving savings-investment conversion, optimizing resource allocation, encouraging corporate finance dominated by stock and bond financing, opening up to foreign markets, promoting technological innovation, and stimulating entrepreneurship.
To further explore the relationship between the financial development and structural upgrading of the manufacturing industry, this paper uses a panel data set of 121 cities with strong industries in China. It is found that the financial correlation ratio significantly affects the manufacturing industry structure upgrading, indicating that this factor can explain a large proportion of the regression results.
Fixing Equipment Issues
Many small business loans allow manufacturers to buy new equipment and stay competitive. However, sometimes older equipment breaks down and the cost of repairing it rivals or outweighs the value of buying new machines.
This can lead to missed production schedules, lost orders, and lost revenue. To prevent this, manufacturers can use financing options like invoice factoring and invoice financing to get an advance on outstanding accounts receivable from customers.
In addition to these financing options, a manufacturing company can also consider short-term or business lines of credit. This type of financing operates similar to a business credit card and offers flexible terms and lower interest rates than traditional principal and interest business loans. This is a popular choice for companies with many projects lined up and want to preserve their cash flow.
Investing in Bulk Raw Materials
Manufacturing is an industry that is heavily dependent on raw materials. Consequently, companies that produce products in bulk tend to have the most success as they can better anticipate demand and keep up with production schedules. Additionally, buying raw materials in large quantities can significantly cut down on logistics costs.
Despite the fact that some manufacturers can easily afford to buy their raw materials in large quantities, others are at the mercy of mother nature and have to invest in a mining company or oil drilling rig to get their hands on the necessary natural resources. This can cause a considerable amount of uncertainty about the future and may make some manufacturers reluctant to spend so much money on raw materials.
A raw material is an unprocessed or unfinished product. It can be found in nature and includes things like metals, coal, timber, sand, plastic, natural gas, and minerals. Some of these raw materials can be directly used in a final product, for instance wood to make a chair. Others can be incorporated in the production process as a whole but are not part of the final product, such as the oil that keeps machinery running.
Manufacturers need to have a lot of different kinds of raw materials on hand to make their products. Some of these raw materials are high-cost and need to be carefully accounted for, while others are low-cost and can be bought en masse. For example, a manufacturing company might need to have many boxes of screws on hand but it’s probably not worthwhile to spend hours counting each individual screw.
