Lines of Credit for Manufacturing Businesses: Managing Raw Material Costs and Payroll

Working Capital Flexibility for Production

Manufacturing operations require constant working capital management. Raw materials must be purchased before production. Payroll runs weekly regardless of customer payment timing. Large orders strain cash flow even when profitable.

A business line of credit provides flexible access to capital that matches manufacturing's variable needs.

How Manufacturers Use Lines of Credit

• Raw materials: Purchase materials as needed for production
• Payroll coverage: Bridge timing gaps between expenses and revenue
• Large order fulfillment: Fund production for major contracts
• Supplier opportunities: Take advantage of volume discounts
• Seasonal preparation: Build inventory before demand surges
• Emergency repairs: Address equipment issues immediately

Line of Credit Options

Asset-Based Revolving Credit

Manufacturers with significant receivables and inventory often qualify for asset-based revolving credit. Your borrowing capacity fluctuates with your asset values—more receivables and inventory means more available credit.

This structure naturally aligns with production cycles: as you produce and sell more, both your capital need and available credit increase together.

Managing Production Cycles

Manufacturing creates predictable capital cycles: purchase raw materials (cash out), produce goods (labor costs), ship and invoice (receivables created), collect payment (cash in).

A line of credit bridges each cycle. Draw to buy materials, repay as customers pay. The revolving nature matches continuous production.

Large Order Management

Large orders are great for revenue but challenging for cash flow. A $500,000 order might require $300,000 in materials and labor before you see payment.

Your line of credit absorbs this working capital spike. Draw for production costs, repay when the customer pays. Without this flexibility, you might have to turn down profitable large orders.

Qualification Requirements

Line of credit qualification typically requires 2+ years in business, consistent production and revenue, strong accounts receivable and inventory, credit score of 650+ (higher for best rates), and demonstrated cash flow management.

Asset-based lines may qualify manufacturers whose traditional financials wouldn't support unsecured credit.

Sizing Your Line

Calculate your working capital needs: average monthly raw material purchases, monthly payroll, buffer for large orders, and seasonal variation.

Your line should cover 2-3 months of working capital needs at minimum. For manufacturers with large orders or significant seasonality, more may be appropriate.

Building Credit Capacity

Start with what you can qualify for and build over time. Consistent, responsible use—drawing for legitimate needs and repaying promptly—leads to limit increases.

Many manufacturers grow from initial $100K lines to $500K+ over several years as they demonstrate creditworthiness.