Business Loans for Manufacturing: Equipment, Working Capital, and Growth

Manufacturing businesses operate with significant capital requirements. Equipment investments can reach hundreds of thousands or millions of dollars. Raw materials must be purchased before products are sold. And production cycles create timing gaps between cash out and cash in.

Understanding manufacturing-specific financing helps you invest in equipment, manage production cash flow, and fund growth without compromising operations.

Manufacturing Financing Dynamics

Lenders evaluate manufacturers through a specific lens:

• Capital intensity — Significant equipment and facility investment
• Production cycles — Time from raw materials to finished goods to cash
• Customer concentration — Large contracts can mean dependency risk
• Equipment specialization — Some machinery has limited resale markets
• Working capital needs — Inventory and receivables tie up cash
• Cyclical exposure — Many manufacturing segments follow economic cycles

Financing Products for Manufacturing

Different financing addresses different manufacturing needs:

Equipment Financing: The Manufacturing Core

Equipment is central to manufacturing operations. Financing options include:

• Term loans — Borrow a fixed amount, pay over time, own the equipment
• Equipment leases — Use equipment with lease payments, various end-of-term options
• Sale-leaseback — Sell equipment you own, lease it back, free up cash

Choosing between loan and lease: Loans work well when equipment will last beyond the term and you want ownership. Leases can make sense for technology that may be upgraded, or when preserving working capital is priority.

SBA 504 for Manufacturing

The SBA 504 program is particularly well-suited for manufacturers because it targets fixed assets with long useful lives:

• Real estate — Manufacturing facilities, warehouses
• Major equipment — Production lines, heavy machinery
• Long terms — Up to 25 years for real estate, 10-20 for equipment
• Fixed rates — CDC portion is fixed for the full term
• Low down payment — 10% for most projects

Real-World Scenario: Production Line Expansion

The situation: A metal fabrication company in Arlington has been in business 8 years, generating $3.2M annually. A major customer wants to double their order volume, but current capacity cannot support it. The company needs $450,000 for additional CNC equipment and workflow modifications.

The financing approach: SBA 504 loan for the equipment purchase. Structure: $225,000 from conventional bank (first lien), $180,000 from CDC (second lien, SBA-backed), $45,000 owner equity injection.

Terms: Bank portion at 7.5% variable, CDC portion at 6.2% fixed for 20 years. Blended rate approximately 6.7%. Monthly payment around $3,400.

Key factors: Strong customer commitment (letter of intent for increased orders), existing profitable operations, owner equity investment, equipment with long useful life.

The outcome: New equipment installed within 4 months. Production capacity increased 85%. Annual revenue grew to $4.8M within 18 months.

Working Capital for Production Cycles

Manufacturing ties up cash in inventory and receivables. Understanding your cash conversion cycle is essential:

• Raw material purchasing — Cash out before production begins
• Work-in-progress — Labor and overhead costs during production
• Finished goods inventory — Complete products awaiting shipment
• Accounts receivable — Invoice timing and collection
• Cash conversion cycle — Days from cash out to cash in

A line of credit sized appropriately for your cash conversion cycle provides flexibility to manage production without cash crunches.

What Manufacturing Lenders Evaluate

Beyond standard metrics, manufacturing lenders focus on:

• Customer concentration — Dependence on one or few customers raises risk
• Backlog quality — Are your orders firm, with creditworthy customers?
• Equipment condition — Deferred maintenance suggests cash flow pressure
• Capacity utilization — How close to maximum are you running?
• Margin trends — Are you maintaining profitability on production?
• Industry outlook — Is your segment growing or contracting?

Customer Concentration Risk

Many manufacturers have significant revenue concentration with a few large customers. Lenders evaluate this carefully:

• Percentage thresholds — More than 20-30% from one customer raises flags
• Customer creditworthiness — Strong customers mitigate concentration concern
• Contract terms — Long-term contracts with volume commitments help
• Diversification efforts — Show you are working to expand customer base

Manufacturing financing is available for companies that demonstrate operational competence, reasonable customer diversification, and clear equipment investment plans. Work with lenders who understand manufacturing dynamics.