Are you looking to start manufacturing in North America but don't have the necessary funds to set up a factory? Financing a new factory can be challenging, especially for startups and small businesses. However, various financing options can help you secure the funding you need to make your dream a reality. In this blog, we will share five ways to secure financing for your new factory in the US. These options are specifically designed for companies starting their manufacturing operations in North America and looking for ways to fund their set-up costs. Read on to learn more about the financing options available to help secure the funding you need to get your factory up and running.
5 Financing Options for a Factory Set-Up in The United States
1. Traditional Bank Loan
The most common financing option is a traditional bank loan. You can secure a loan from your local bank with a good credit history and a solid business plan. However, keep in mind that the application process can be lengthy, and there may be strict requirements for collateral and down payments. An additional factor is rising interest rates across the global economy. This is a factor regardless of company size but can be more burdensome to new business. As a result, easy credit is drying up, and small businesses should carefully weigh their options before relying solely on bank loans.
2. SBA Loans
Apply for a U.S. Small Business Administration (SBA) loan. These loans are specifically designed to help small businesses get the funding they need to succeed. While the application process is still rigorous, SBA loans offer more flexible terms than traditional bank loans. Additionally, SBA has various specific programs companies can use, including Veteran's loans, HUBZones, and minority-owned business loans. As a veteran, I have benefited from some of these programs.
3. Equipment Financing
If you need to buy expensive equipment for your factory, equipment financing could be an option to consider. This type of financing allows you to borrow a percentage of the equipment's value and pay it back over time, similar to a car loan. For instance, suppose you're planning to set up a factory that produces specialized machinery, and you need to purchase a piece of equipment worth $100,000. However, you don't have enough cash to pay for it outright and can't begin production without it. In this case, you could apply for equipment financing. You can find lenders that offer equipment financing and apply for a loan for a portion of the equipment's value, usually around 80%. For example, suppose your application for an $80,000 loan gets approved by a lender offering a fixed interest rate of 8% per year. Then, you can use the loan to buy the equipment and start production. Over the next five years, you can repay the loan in monthly installments of $1,610. Once you complete the five-year term, you will have paid $96,596, including $16,596 in interest. This way, equipment financing can provide a viable solution to purchasing costly machinery while spreading the payment over time.
4. Crowdfunding
Crowdfunding has become popular for entrepreneurs to raise funds for their ventures. This approach involves reaching out to a large group of people and asking them to invest in your factory. Although it requires a lot of marketing and networking, it can be an excellent way to obtain funding without incurring debt. For example, one of our current clients is using Equitise to raise capital for their operations, and they've been pleased with the results so far. Other options, such as Start Engine, Republic, and many others, are also available. Despite their advantages, these services have several drawbacks, including public disclosure requirements, fees charged by the service, and limited control over the fundraising process.
5. Grants
Several grants are also available for businesses looking to start or expand their operations. These grants are often specific to certain industries or geographic locations, so be sure to research the ones that apply to your factory. In addition, thousands of federal, state, and local grants and tax incentives exist to encourage manufacturing in the US. Most of these are industry/region specific such as The Clean Energy manufacturing initiative or a program in Michigan that offers tax credits for investing in new equipment, buildings, or job training.
Maximizing Funding for Your Factory: Combining Strategies for Optimal Results
These strategies should not be taken in isolation. You can secure the funding to bring your factory to life by combining the various methods and consulting with financial and manufacturing advisors. It's essential to consider your options carefully and determine the best financing plan for your specific situation, considering any unique considerations in different countries and regions. Remember, all of these financing options should be regarded as collaboration. By combining them, you can raise funds to suit your organization's needs best, whether focusing on debt, equity, independence, or other factors.
