What Is A Manufacturing Business Loan And How To Use It

Business loan can be helpful for the businesses to meet their cash crunch. Manufacturing business loan is a kind of business loan available for manufacturing companies. Read to know more about it.

12 Sep,2022 11:28 IST 2 views
What Is A Manufacturing Business Loan And How To Use It

Manufacturing companies in India have plenty of opportunities both at home as well as the export market. But they also face multiple challenges ranging from strict labour laws, poor infrastructure, lack of innovation and inadequate funds.

To meet the shortage of funds, manufacturing companies can easily take a business loan from a bank or a non-banking finance company. The loan can be utilized for procuring raw materials, renting or setting up a manufacturing facility, buying or leasing machinery, and for expanding production capacity.

Manufacturing businesses differ from sector to sector and their requirements may differ, too. The tenor of business loans available to the manufacturer can range from 30 days to 36 months or even higher in case it is secured against a collateral.

Based on their requirements and the cash flow cycles, there are different types of manufacturing business loans. Here are some of the options.

• Working Capital Loans:

A manufacturing unit can take a working capital loan to finance the everyday deficit arising from the between the payment collectible from customers and the payment made to suppliers.

Working capital loans can be secured or unsecured. A secured loan requires the manufacturing business to keep an asset as collateral. This can be property or the factory, stocks and finished goods.

• Machinery Loans:

Adopting the latest technology and machinery can help a manufacturing business meet cut-throat competition. Entrepreneurs and small business owners can use such loans to purchase new machinery or to upgrade existing machinery. For such loans, the machinery itself can be used as a collateral.

• Asset Or Property Purchase Loan:

A manufacturing unit needs certain fixed assets like a commercial space, a warehouse, an industrial shed or a factory. They can take a business loan for this purpose, but most banks require some form of security as a guarantee for this type of loan.

• Lease Rental Discounting Loan:

Lease rental discounting is sanctioned based upon the monthly rental income and the market valuation of the leased space offered as the collateral. It is availed by tenants against the rental contract and the underlying value of the property.

Irrespective of the manufacturing business loan one chooses, it comes with the following benefits. These include flexible repayment terms, minimal documentation, and speedy disbursal process.

After assessing the capital required for the business, borrowers can apply offline as well as online for availing a loan. However, to qualify for a larger loan and competitive interest rates, manufacturers must have a good credit score, a clean credit report and proof of a steady cash flow along with minimum operational years in the industry.

Conclusion

Manufacturing business loans can be helpful not only for meeting the day-to-day operational expenses but also for technological upgradation or for purchasing new machinery and setting up or expanding a factory.

Manufacturing companies have distinct business cycles that may impact the cash flow process. Borrowers must carefully assess every aspect of the business and avail a business loan that best serves their purpose.

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