Many small and medium manufacturing companies, like their larger siblings, rely on business loans to fund business operations, equipment purchases, and fuel growth.
Besides, one manufacturing business is different from the other owing to types. Hence, for such a dynamic industry, gates of different financing optionsare open for entrepreneurs. Depending on varied needs, options are also available for manufacturers that have a less-than-perfect credit history.
Let us look at the type of loans for manufacturingenterprises out there:
Term loans
Ranging from secured or unsecured loans, the amount depends on the business’s credit history. Fixed tenures range from 1 to 5 years if unsecured or up to 15 to 20 years if secured. It services a specific purpose, generally for capital expenditure. The amount is disbursed in a lump sum by the lender.
Working capital loan
When operational expenses are covered, enterprises can dream big on expansions. A working capital loan helps dealing with a shortfall of cash during the off-season or spurted seasonal demands. Also, ascertain your running expenses and loan amount using a business loan calculatorand generate a balance of cash flow in the business.
Equipment financing
For costly operational equipment, loans for equipment financing are a popular choice. Lower business loan interest ratesare often applicable on this type of finance. Also, here the equipment is hypothecated as collateral with some other securities.
Additional Read: How Does a Machinery Loan Help You Boost Your Business?
Invoice financing
Also known as invoice discounting or invoice factoring, this encounters time lags between raising invoices and actual realisation by small manufacturing businesses. Financial institutions provide funds against the amount raised in the invoice. Lenders can finance up to 80% of the invoice amount. Once realised, the business can repay and clear the debt off according to the decided tenure and interest rate.
Line of credit
Also known as a revolving line of credit, it offers flexible loan options for businesses. Unlike a loan, a line of credit is repaid when the business draws from the line. Its working is similar to a credit card. A specific amount is assigned based on business loan eligibility,credit rating and cash flows to the enterprise.
Apart from these, theRXIL (Receivables Exchange of India Ltd) is a joint venture promoted by SDBI and NSE that offers a way for invoice financing. Similarly, the Pradhan Mantri Mudra Yojana (PMMY) and Stand Up India schemes fit in with MSME enterprises and entrepreneurs. Credit guarantees backed with collaterals offer business loans for manufacturing companies, amounting anywhere between Rs. 10 lakhs to Rs. 1 crore.
Additional Read: Business Loan VS Lines of Credit: Everything You Need to Know
The bottom line
No matter how calculative risks are taken, unpredictable markets knock out operations. Therefore, it is best to consult a financial expert like Tata Capital, to help you assess the pros and cons of a funding medium.
We also offer flexible business finance options at attractive interest rates with minimal paperwork. Before applying for a business loan with us, you can assess your EMIs by using our online business loan EMI calculator.
To know more, contact us today!
