The manufacturing industry is growing at an exponential rate in comparison to other sectors of the economy. Many ambitious entrepreneurs will obviously want to establish and run lucrative companies in this sector. They are eager to cater to and meet the needs of a largely corporate clientele. This could include businesses in the aviation, automobile, textile, energy, or electronics sectors. In the process, they will be providing employment opportunities to many people. However, they might not have sufficient upfront capital to fulfill their dreams. In such a situation, they should consider applying for manufacturing loans to fulfill this purpose.
How can entrepreneurs use funds from manufacturing loans?
Entrepreneurs need to understand many lenders in the market are willing to offer them manufacturing loans. These financiers generally consist of credit unions, commercial banks, governmental agencies dealing in small business administration (SBA) schemes. Each of these financial institutions will provide entrepreneurs with the funds they need to fulfill certain conditions. Entrepreneurs can then use the money to:
- Purchase relevant commercial real estate to build their factories
- Acquire and install the necessary machinery and equipment to commence manufacturing operations,
- Set up the relevant material processing, fabrication, storage, and distribution facilities,
- Maintain a steady cash flow to ensure the continuity of the manufacturing operations, and
- Upgrade the current inventory and hire the labor to commence production.
Financial institutions specializing in manufacturing loans to entrepreneurs expect their borrowers to satisfy the following stringent eligibility conditions:
- They should have a good credit score and be able to produce the necessary documents to prove it,
- Provide adequate collateral against the loan amount, which the lender can utilize in case they default,
- Submit a copy of their Certificate of Incorporation and other similar business documents,
- Produce copies of certified audited financial statements and federal tax returns for a specific number of previous years,
- Submit copies of their latest certified audited financial states and federal tax returns,
- Submit copies of documents highlighting their proposed business plans and existing facilities, and
- Produce documents to prove they have adequate liquid assets to clear the loan amount on time.
Entrepreneurs need to ensure a qualified Certified Public Accountant (CPA) with in-depth knowledge of their business attests to the documents. The lenders will then thoroughly scrutinize the paperwork before sanctioning their loan applications.
The advantages of using manufacturing loans to conduct business operations for entrepreneurs are as follows:
- They can pay off their business debt in flexible, timely installments,
- The rate of interest on such debts are comparatively lower than other modes of finance,
- They can claim deductions on their loan repayments to reduce their overall tax liability, and
- Unlike raising equity capital, they do not have to allocate a share of the after-tax business profits to their shareholder.
Raising capital through manufacturing loans allows entrepreneurs to take their business operations to the next level. However, they need to choose the right financial institution offering them these lending schemes. The lenders should have experience in offering these loans and provide them multiple options to suit their needs. Above, the eligibility requirements of the institution should be lenient for businesses to apply for the loan.