Term Loans for Manufacturing Businesses: Capital for Production Runs and Raw Materials

When Speed Matters in Manufacturing

Manufacturing opportunities don't always wait for SBA timelines. A major customer contract requires immediate capacity expansion. Raw material prices spike and you need to stock up. A competitor's equipment comes on the market at a discount.

Term loans from banks and alternative lenders provide capital in days to weeks—time frames that work for manufacturing realities.

Common Term Loan Uses

• Equipment: Faster acquisition than SBA timelines allow
• Raw materials: Stock up for large orders or price advantages
• Production runs: Fund materials and labor for major contracts
• Facility improvements: Upgrades that can't wait
• Working capital: Bridge gaps in production cycles
• Acquisition opportunities: Move fast on available deals

Term Loan Options for Manufacturing

Asset-Based Lending for Manufacturers

Manufacturing businesses often qualify for asset-based loans (ABL) that leverage equipment, inventory, and receivables as collateral. ABL can provide larger loans than traditional underwriting supports.

If you have significant equipment value, inventory, or receivables, asset-based lenders may offer better terms than your financial statements alone would indicate.

Funding Large Contracts

Landing a major contract creates immediate capital needs—raw materials, additional labor, sometimes equipment. Term loans can bridge the gap between incurring these costs and receiving payment.

Calculate your working capital need: contract value x your cost percentage x payment timeline. A $1M contract at 60% cost with 60-day payment terms might require $600,000 in working capital.

Raw Material Financing

Raw material costs often represent 40-60% of manufacturing expenses. When material prices are favorable or you're preparing for large orders, term loans can fund inventory buildup.

Some manufacturers use short-term loans specifically for material purchases, repaying as finished goods are sold.

Qualification Requirements

Term loan qualification for manufacturing typically requires 2+ years in business, consistent revenue and profitability, equipment and inventory as potential collateral, credit score of 650+ (700+ for best rates), and debt service coverage of 1.2x+.

Asset-heavy manufacturers often qualify for larger amounts based on collateral value.

Costs vs. SBA

Term loans cost more than SBA loans—often 8-15% vs. SBA's 10-13%. But faster access and simpler processes may justify the premium when timing matters.

Calculate the value of speed. If a term loan helps you capture a $500,000 contract that SBA timing would miss, the higher rate is easily justified.

Building Banking Relationships

Manufacturing businesses benefit from strong banking relationships. A bank that understands your industry and business can provide faster approvals, better terms over time, flexibility in structuring, and relationship-based decisions beyond pure numbers.

Maintain your primary business accounts with a bank capable of being your lending partner.