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Managing an
ever-changing manufacturing business?
Picture this: a big order lands on your desk. It's the high-volume job that could send your production line into overdrive and your bottom line soaring. But a quick funds check throws cold water on your excitement – you lack the manufacturing finance to fill it. Rejecting the order seems like the only option, but that means:
- Saying goodbye to revenue and slamming the brakes on potential growth
- Cash flow problems as you miss the opportunity to keep sales coming in
- Lost business as customers head to a rival instead.
But there is another way.
Manufacturing finance from alternative lenders is enjoying a boom in South Africa right now.
Fast and secure, it’s the financial safety net that’s letting many business owners across the country say ‘yes’ to these lucrative opportunities and take their enterprises to the next level.
But, what are these manufacturing finance solutions, and how can South African businesses get them?
What is manufacturing finance?
Manufacturing finance is an SME funding solution designed to help companies buy the raw materials and new equipment they need for production. It also helps to cover operating costs and weather fluctuations in their inventory.
You may see it referred to as asset finance or manufacturing equipment financing, with both of these terms falling under the same umbrella.
Often, companies, especially new businesses, need to bridge the gap between their current cash flow and their growth ambitions. This type of liquidity helps them to do that.
Who needs manufacturing finance?
Any manufacturing company that doesn’t have the working capital to keep cash flow running smoothly or move to the next growth stage requires financing.
One example might be a furniture manufacturer that wants to invest in new automated CNC (computer numerical control) machinery to improve efficiency, but the high cost of doing so is stopping them.
Manufacturing finance can help remove this obstacle. The result? The manufacturer ramps up production processes and reduces waste, thus growing its profitability and offsetting the cost of borrowing.
How does manufacturing finance work?
Companies must typically follow a structured approval process to get manufacturing finance, which can take days or even weeks. Here’s a simplified breakdown of how it works.
The first step is for you to fill out a form with your business’s details, how much funding you need, and why you need it.
You’ll probably also need to supply a credit report and bank account statements.
The lender will assess your business’s health and growth potential, and then provide you with an approved amount, which may not be 100% of what you applied for.
If agreed, you can expect to receive the funding within a few days.
Often the lending contract will limit how you can spend the funding, which will normally be for manufacturing-related expenses or purchases.
Once received, you’ll have to follow a pre-agreed repayment plan, which will usually have interest and fees built in. This will follow a schedule lasting several months (or years) in which you face penalties should you break any of the repayment terms.
That said, some alternative lenders are offering manufacturing finance that streamlines the approval process and offers businesses competitive rates and flexible terms. These are rising in popularity in South Africa due to a restricted lending market that is making it hard for manufacturing companies to secure funding.
What are the pros of manufacturing finance?
All kinds of businesses, new or established, can benefit from manufacturing finance, particularly from alternative lenders that are breaking free of traditional qualifying restraints.
A manufacturing SME with sustainable growth plans needs to have the means to buy equipment and raw materials. Manufacturing finance provides that.
Modern manufacturing finance options often boast quicker approval times compared to traditional term loans. This means you can seize time-sensitive opportunities without a funds hold-up thwarting your plans.
Alternative manufacturing lenders tend to streamline their approval and repayment process compared to traditional business loans. This often includes a customised pay-back schedule that’s adapted to your business’s set-up, instead of a ‘one-size-fits-all’ model.
What are the drawbacks of manufacturing finance?
Like all types of finance, much of borrowing for manufacturing has downsides. Here are a few to consider.
The recent surge in manufacturing finance lending means that some South African lenders may be close to full capacity. This might mean a lower lending limit than usual or even an outright block on borrowing.
Lenders tend to only agree to provide funds tied directly to the purchase of specific materials or inventory, which means you can’t use them for other business needs.
Many lenders see manufacturing finance as riskier than term loans, so often impose higher interest rates and additional costs that fluctuate according to the amount you borrow. This makes it extra important to study terms and conditions in great deal before you sign the lending contract. You could also seek an alternative lender that lists fixed and transparent costs upfront so that you have a clear picture of what you need to pay back.
Does my business qualify for manufacturing finance?
Knowing every small detail about your business and how it measures up in today’s manufacturing industry will tell you if you’re set to qualify for funding.
Some of the key metrics that lenders look at are your financial management practices: do your balance sheet, gross profit and sales forecasts suggest you can handle the additional debt? If so, you’re in a good position to secure funds.
Another is your manufacturing process. Lenders are more likely to invest in operations that minimise waste and maximise output. Evaluate your automation levels and supply chain efficiency to get a clear picture of this.
Finally, look at your growth initiatives. How do you plan to expand? Will it be via equipment upgrades, upping capacity, increasing your sustainability, or a combination of all three?
Ticking these three boxes should put you in a strong position to secure manufacturing funding as lenders put you through their risk management assessment.
The business lending market is struggling right now, but that doesn’t mean you have to go without the manufacturing finance you need to take your business to the next level.
It also doesn’t mean you should wait around for slow and cumbersome lenders to give you the funding you need.
As Forbes Council Member Eric Bernstein summed up recently, “In a fast-developing market, the status quo can mean slow decay. What used to take hours in asset finance now takes ten minutes”.
Lula’s answer to manufacturing business funding in South Africa: Revolving Capital Facility
Lula is a South African SME funding provider that is breaking this tradition by offering businesses fast and flexible capital on tap.
Our Revolving Capital Facility is designed to inject your business with funds whenever you need them. All you need to do is follow three simple steps.
- Apply online in two minutes: no paperwork, no fuss.
- Receive up to R5 million in funding within 24 hours
- Get a personalised repayment plan with transparent costs that stay fixed no matter how much you lend.
Lula’s Revolving Capital Facility is ‘revolving’ because you can borrow and repay the funds again and again: you don’t need to go through the whole process of applying again once approved. Just think how much time and trouble that can save you down the line.
You can also forget about repayment penalties – we’re happy for you to repay the full amount when you want at no extra cost.
Get your business machine up and apply for Lula’s Revolving Capital Facility in just two minutes.
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