Business Line of Credit for Manufacturers
A business line of credit lets a small manufacturer draw for raw materials when an order starts and repay when the customer pays, weeks or months later. Because production cycles repeat and customer terms stay long, a revolving line with interest only on the balance usually costs far less than taking a new advance for each job.
When does a manufacturer draw on a line?
Starting a large order
Material, tooling and overtime all come before the first invoice. A draw funds the start of the job and gets repaid from the customer's payment.
Material price swings
When supplier prices climb, buying ahead at today's price protects the margin on quoted jobs. A draw makes that possible without waiting for the next customer payment.
Uneven collections
Customers on 30- to 60-day terms rarely pay on the same schedule. The line fills in the weeks when several invoices are outstanding at once.
Covering a slow month with the line
Consider a small manufacturer with $300,000 in average deposits and a $120,000 line at 1.75% a month on the balance. It draws $60,000 for a slow month and repays in thirds.
| Step | Balance on the line | Cost that month at 1.75% |
|---|---|---|
| Draw in the slow month | $60,000 | $1,050 |
| After one repayment | $40,000 | $700 |
| After two repayments | $20,000 | $350 |
| Paid back | $0 | $0 |
Total cost lands around $2,100; unused limit costs nothing unless there's a fee. BLS headcount for manufacturing (NAICS 31-33) moves just 1.1 points over the year, so use your own thinnest month here.
How do funders size a manufacturer's line?
They look at monthly revenue, receivables aging, customer concentration, business tax returns, credit and existing equipment loans. Manufacturers with a diverse customer base and a long operating history get larger limits. Heavy equipment debt or a few dominant customers reduce the limit.
Lines backed by receivables and inventory
Some funders offer borrowing-base lines secured by receivables and raw material inventory. These can be larger than an unsecured line but require regular reports and put a lien on those assets.
How should a manufacturer manage its line?
Draw by job and repay as each job's invoice clears. Tracking draws against specific orders shows which jobs tie up the most cash, which helps with pricing and customer terms later. At renewal, a line that cycles reads better than one that stays full.
Keep equipment on its own financing
Use equipment financing for machines and the line for materials and payroll. Mixing them keeps the line tied up for years.
Quick answers
How much line of credit can a small manufacturer get?
Limits often follow monthly revenue and receivables, adjusted for credit, customer concentration and existing equipment debt. An unsecured line often equals a few weeks of revenue, while a borrowing-base line secured by receivables and inventory can go higher as the business grows.
Is a line of credit better than an advance for raw materials?
Usually. Materials turn into invoices within weeks or months, and interest on a line runs only during that time. An advance charges its full cost whether the job pays quickly or slowly, which makes it more expensive for a repeating material cycle.
Does equipment financing affect a manufacturer's line?
Yes. Funders count equipment payments when deciding how much room the business has, and a lien on all business assets from an equipment loan can block a secured line. Equipment loans secured only by the specific machine usually leave room for a line.
More for manufacturers
- Same-day merchant cash advance for manufacturers
- MCA consolidation for manufacturers
- How funders read manufacturers
- Business line of credit: how it works
Run your own numbers with the MCA APR calculator.
Want to see what fits a small manufacturer like yours?
Tell us your slow months and your open advances, and we'll shop the file with funders whose programs fit. Call 877-FUND-654 with any question. We call you back, usually the same business day, and we always talk with you before we shop your file.