For manufacturers to adapt to change, they need to be able to innovate successfully and promptly.
Using new equipment, scaling up to larger factory facilities, and hiring enough personnel trained in the latest technologies can all help. To provide the means for factories to adapt to change, it’s sometimes necessary to take on borrowings to do so.
Here are several types of funding options available depending on what it’s required for.
The types of factory loans available are different from regular business loans. These funding capital options don’t work with interest rates; instead, they use a factor cost.
However, don’t be put off by this, because the lender can explain all the terms of the loan so that it’s completely clear before going ahead. A loan to a factory may require a specialist lender because of the size requirement.
So, a traditional bank may feel ill-equipped to handle it. Don’t be surprised if this is the case.
Business line of credit
A line of credit for a business is sometimes difficult to appreciate for people who are mostly only familiar with loans that get repaid with interest. With a business credit line, the idea is that the facility is agreed upon.
Once set up, it remains available up to a set maximum level of borrowing for a specific period. At which point, the revolving credit may end or get renewed again.
The advantage over a standard business loan, or a factory loan for that matter, is that interest is only charged on the sum borrowed.
Therefore, when amounts are needed only occasionally and for limited durations, then it can be very affordable compared to a fixed-term loan.
One of the disadvantages is that they must be carefully managed to avoid taking out too much credit. Another is that while it’s usually affordable, they’re harder to get approved for.
Loans for manufacturing equipment
While manufacturing equipment does get used and acquire minor defects due to wear and tear, it tends to hold up well to retain considerable value. Therefore, it makes an effective asset to use as collateral to secure a loan to purchase the equipment.
The idea with new manufacturing equipment is that it either allows the factory to continue to produce in the same manner, or it significantly upgrades their facilities.
With the upgrade, hopefully the new machinery is capable of producing a wider product range too. This helps to squeeze out the maximum value from the acquisition.
When you want to keep up with innovation, this is certainly a good way to do so.
Factoring to cover short-term cash needs
When money has gotten tighter and receivables are slowing down, then it may be time to consider invoice factoring. The idea here is that the factoring company will pre-pay a significant percentage of the invoices generated by the business.
By doing so, it gets receivables in the hands of the factory sooner than it otherwise would. For factories struggling with slow paying, yet reliable customers, then factoring can provide a way to improve the cash flow of the business.
It’s necessary to look at the business case to decide which funding is most applicable to a manufacturing business.
They each have different expected durations, costs, and uses. However, when you want to keep up with innovation, they do give factories far greater latitude than they otherwise would.