The best places to get operating capital for a manufacturing business

If you are looking to start or grow your manufacturing business, you have come to the right place.

In this helpful article, we review 10 of the best, easiest ways to get operating capital for your manufacturing business.

The best places to get operating capital for a manufacturing business

In this article, we list 10 places to get operating capital for a manufacturing business, but typically the best place to get operating capital is from the free cash flow from your current operations. The second best place is from the bank you do business with, in the form of a business line of credit. This is usually a favorable interest rate as compared to other sources without giving up equity.

As we get started, here are two very helpful articles that can help you discover creative solutions:

• How do you finance a marketing campaign for business growth? (7 ways)
• How do you fund a marketing campaign? (Solved!)

10 best places to get operating capital for a manufacturing business

In no particular order of importance, we list 10 places where manufacturers can get operating capital.

1. Bank Loans: 

Traditional bank loans are a common source of operating capital for manufacturing businesses. They provide a lump sum of money that is repaid over a specified period, typically with interest. Banks usually require collateral and an established credit history.

2. Small Business Administration (SBA) Loans: 

The SBA offers several loan programs specifically designed to support small businesses, including manufacturers. These loans often come with favorable terms and lower interest rates than traditional bank loans. The SBA guarantees a portion of the loan, reducing the risk for lenders.

3. Equipment Financing: 

Manufacturers often require specialized machinery and equipment, which can be financed through equipment loans or leases. Equipment financing allows businesses to acquire the necessary equipment while spreading out the cost over time.

4. Private Investors: 

Manufacturing businesses seeking operating capital may attract private investors who provide funds in exchange for equity or a stake in the company. Private investors can contribute significant amounts of capital and may also provide expertise and guidance.

5. Venture Capital: 

Venture capital firms specialize in funding high-growth potential businesses, including manufacturing startups. They typically invest in exchange for equity and are actively involved in strategic decision-making and business development.

6. Angel Investors: 

Angel investors are wealthy individuals who invest their personal funds in startups and early-stage companies, including manufacturing businesses. They often provide not only financial support but also mentorship and industry connections.

7. Crowdfunding: 

Crowdfunding platforms allow manufacturers to raise capital from a large number of individuals through small contributions. This method can be effective in generating funds for specific projects, product development, or production expansion.

8. Grants and Government Funding: 

Various government agencies and organizations offer grants and funding programs specifically for manufacturers. These funds may be available for research and development, energy efficiency improvements, workforce training, or other initiatives that benefit the industry.

9. Trade Credit: 

Manufacturers often establish trade credit with suppliers, allowing them to finance purchases and defer payment for a specified period. This arrangement provides short-term operating capital for procuring raw materials, components, or equipment.

10. Invoice Financing: 

Also known as accounts receivable financing, invoice financing enables manufacturers to access immediate cash by selling their outstanding invoices to a financing company at a discounted rate. This helps improve cash flow while waiting for customers to pay their invoices.

11. From your free cash flow:

Of these options, I prefer to use operating capital from free cash flow. While not always possible, this keeps the company in control and does not jeopardize equity positions nor does it adversely affect the liabilities side of the balance sheet with excessive debt loads.

As always, it is essential to evaluate the terms, interest rates, repayment terms, and eligibility requirements associated with each funding source to determine the most suitable option for your specific needs and circumstances.

What do I suggest?

Two things.

First, go find a great marketer who knows how to jam successful marketing campaigns, generate large cash payments, and increase gross profit margins.

Second, find an excellent bookkeeper and a crotchety old accountant who has ‘seen it all’ and can help you with decreasing your costs in union with your marketer who is increasing your sales and cash positions.

Do these two things and you’ll cure your operating capital needs because your free cash flow position will have grown by leaps and bounds!