SBA 7(a) Loans for Manufacturers
If you own and operate a manufacturing company, an SBA 7(a) loan can provide you with funds to expand your firm, build a new headquarters, acquire a competitor, or refinance existing debt.
Do you own and operate a manufacturing company?
The SBA's 7(a) loan can be your ticket to sourcing funds to expand your firm, build a new headquarters, acquire a competitor, or even refinance your business debt.
SBA 7(a) Loans and the Manufacturing Industry
While the SBA 7(a) program may be a great choice for many manufacturing firms, they aren't always easy to qualify for.
First, it’s important to make sure that your firm is within the SBA’s size limits for your specific sub-industry (in most cases, it will be, since the maximum size for a “small” business is actually pretty big.) See the table below.
Maximum Number of Employees
Breakfast cereal producers
Knit fabric mills
Cut and sew apparel
Be sure to check the list from the SBA to find the maximum size in your particular field. It isn't always logical: Beet sugar manufacturers, for example, must have fewer than 750 employees, while cane sugar manufacturers can have up to 1,000.
SBA 7(a) Loan Uses for Manufacturing Businesses
When it comes to manufacturing firms, the SBA 7(a) loan can be used for a variety of purposes.
Buying Out a Competitor
If you’d like to acquire a competitor’s business, you may be able to use a SBA 7(a) loan to do so. These loans can also be used to buy out business partners or, in some cases, passive investors in a business.
Buying or Building a Manufacturing Facility
SBA 7(a) loans provide terms of up to 25 years for commercial real estate loans, and can also be used to finance all aspects of the construction process.
Buying Manufacturing Equipment
SBA 7(a) loans can be used to finance the purchase of heavy equipment, usually with up to 10-year terms.
If you want to refinance business debt, you can also do so with an SBA 7(a) loan. In most cases, however, the debt must currently have unreasonable terms, and must have been used to fund business purchases (not personal expenses.)
Whether it’s B2B or B2C marketing, paying employee salaries during a rough patch, or simply keeping the office stocked with new supplies, an SBA 7(a) loan can provide the short-term capital that a manufacturing business needs.
However, businesses looking for a revolving line of credit, especially those that face cyclical/seasonal sales cycles, may be better served by the SBA CAPlines program.
Case Study: Building a Manufacturing Facility
Sophia, the owner of a successful eco-friendly packaging manufacturing company in Rochester, New York, was looking to expand her business. The demand for her products was growing rapidly, and she realized that in order to keep up with the increasing demand, she needed to build a new manufacturing facility.
Sophia conducted thorough research and determined that an SBA 7(a) loan would be the ideal financing option for this expansion. Before applying for the loan, she made sure that her business met the SBA size standards for manufacturers. Her company had 200 employees, which was under the SBA's limit for her industry.
With a clear vision of the new facility in mind, Sophia applied for an SBA 7(a) loan of $2.5 million to cover the construction costs and purchase of new equipment. She provided a comprehensive business plan, detailed financial projections, and a strong case for the positive impact the new facility would have on her company's growth and ability to meet customer demands.
The lender reviewed her application and, although they were not overwhelmed by the presentation, they recognized that Sophia's business had potential for growth and her financial projections were reasonable. They decided to approve the loan, understanding that not every business owner would have a perfect application but still deserved a chance to grow.
With the loan secured, Sophia moved forward with the construction of the new manufacturing facility, which allowed her company to increase production and continue its growth trajectory.
This is a fictional case study provided for illustrative purposes.
What are the eligibility requirements for SBA 7(a) loans for manufacturers?
The SBA 7(a) loan program is a great choice for many manufacturing firms, however, they may not necessarily be easy to get. To be eligible, your firm must meet the SBA's size limits for your specific sub-industry. For example, for breakfast cereal manufacturing, the maximum number of employees is 1000, for cheese manufacturing, the maximum number of employees is 1250, for knit fabric mills, the maximum number of employees is 500, for cut and sew apparel, the maximum number of employees is 750, for petrochemical manufacturing, the maximum number of employees is 1000, and for heating equipment, the maximum number of employees is 500. Additionally, for non-manufacturing industries, the maximum average annual receipts must be under $7.5 million. You can find more information about size requirements for your specific industry here. You can also learn more about eligible and ineligible industries here.
What are the advantages of SBA 7(a) loans for manufacturers?
The SBA 7(a) loan program offers a variety of advantages for manufacturers, including:
- The ability to buy out a competitor, business partner, or passive investor.
- The ability to buy or build a new manufacturing facility.
- The ability to buy manufacturing equipment.
- The ability to refinance business debt.
- The ability to access working capital.
These loans also offer terms of up to 25 years for commercial real estate loans, and up to 10-year terms for equipment purchases. For businesses looking for a revolving line of credit, the SBA CAPlines program may be a better option.
What are the disadvantages of SBA 7(a) loans for manufacturers?
SBA 7(a) loan disadvantages for manufacturers include:
- Lengthy approval times (for standard SBA 7(a) loans)
- Lots of documentation
- Collateral is often required
- Certain businesses, including real estate investing, lending, gambling, and speculation are prohibited
- High credit scores are typically required (typically 680+)
- May be restrictions on supplemental/additional financing
- Manufacturers must meet the SBA's size limits for their specific sub-industry (https://www.sba.gov/sites/default/files/files/Size_Standards_Table.pdf)
What documents are required to apply for SBA 7(a) loans for manufacturers?
To apply for an SBA 7(a) loan for manufacturers, you will need to provide the following documents:
- SBA Form 1919 (borrower information form)
- SBA Form 912 (statement of personal history)
- SBA Form 413 (personal financial statement)
- Business and affiliate financial statements, including a balance sheet, profit and loss, and income projection
- Agreement to purchase the business
- Letter of intent to buy the business
- Business tax returns for the past three years
- Any outstanding business debt
- Long-term business contracts
- Documentation of business assets
- Business lease agreement
- Incorporation documents and/or business license
- Business plan
The SBA will usually order an independent business appraisal to give lenders an idea of what the true value of the business is. The SBA allows applicants to get help (for example, from a lawyer or a translator) filling out the application paperwork, but your lender will be required to submit information about who gave you help to the SBA, so you’ll need to document who this person is as well.
What is the maximum loan amount for SBA 7(a) loans for manufacturers?
The maximum loan amount for SBA 7(a) loans for manufacturers is $5 million. The SBA will fund up to $3,750,000 of the loan and the private lender will cover the rest. If you are looking for a larger loan, you can try an SBA 504 loan calculator.