Manufacturing businesses form the backbone of nation’s economy. It provides employment and stability to production output of the country. Currently, it comprises of 17% of GDP in the country. The ‘Make in India’ Policy aims to increase the share of manufacturing sector to 25% of GDP and provide employment to 100 million people by 2020. Regardless of the industry, manufacturers are always there on the top of the chain. Retailers and consumers subsequently depend on the manufacturer.
However, a manufacturing business may often involve high overhead expenses. Heavy machinery or large factory area may demand a substantial amount of money. They need to have adequate raw materials for processing. Hiring reliable workers and their efficient training require a handsome amount of investment.
Manufacturing businesses may go through a cash crunch at any point of time. Uncertain market and seasonal fluctuations may result in cash-crunch in business. Business loans for manufacturers help to bridge this gap and to maintain the cash flow.
They need to be aware of the complications involved in business loans and choose from various options to suit them. Here are some of the factors manufacturers must comprehend about their business loans:
Vehicles for the loan
Choosing the right vehicle for your business loan is very necessary. Manufacturers can derive their funding from various financial vehicles like,
Choose the right lender for the business loan. Observe factors such as loan processing speed, collateral required, loan tenor and payout options.
Type of Loan
A manufacturing unit may involve very high investment to set-up large machines. Industries like automobiles, electrical equipment etc. need high manufacturing cost. Conversely, small business loans may be needed to manage peak seasons like in textile industries. Upgradation of equipment also demands a good investment. Lenders provide various types of loan with varying tenor such as short-term business loan and long-term loan.
Interest Rate of Loan
Determine the Annual Percentage Rate (APR) of the interest charged by the lender. Interest rate might be fixed for the entire tenor or it may vary according to terms. Interest rate generally depends upon factors such as,
Repayment Flexibility and Charges
Various lenders have different repayment terms and conditions. They might charge penalties for prepayment and late payment of loan. Clarify repayment methods and policies before considering the loan. Flexibility in repayment like prepayment or extending tenor if the situation demands etc. must be carefully elucidated.
Banks generally ask for collateral for the approval of loan. Many small manufacturing firms cannot provide a collateral and hence look for collateral-free business loans. NBFCs do provide collateral-free loans for business at competitive interest rates.