Commercial loans are a broad term used to describe financial facilities used for commercial purposes. Manufacturers use commercial loans to maintain or grow their operations, whether that be through new machinery, technology upgrades, or physical expansion.

For manufacturing business owners who are considering a commercial loan, it is important to understand first how they work so you can make an informed decision before committing to debt, and as usual, we always advise that you speak to your accountant or financial advisor before pursuing finance. If you are considering commercial finance, we’ll talk you through the common loan types lenders offer below, as well as a number of things you can take away to consider before further consideration.

Standard Commercial Loans Lenders Offer

Each lender will have their own criteria and loan options available, and we cannot speak for those, only ourselves, who offer loan amounts anywhere between £10k – £2m and terms between 3 months and 6 years. Still, we will discuss more options below and ask that if any of them sound ideal, you do further due diligence and research into lenders and their criteria before making any choices.

• Term loans: Term loans like the ones we offer at Nucleus can grant manufacturers a fixed sum of cash that is arranged to be repaid over a specified period. We suggest this loan option to manufacturers who are seeking to make new investments whether it be expanding their facilities or acquiring new equipment. Term loans can really be used for almost any purpose, however, and the predictable repayment schedules enable businesses to better manage their finances once the debt is taken on.
• Invoice financing: Other lenders may offer invoice financing as an option, and this enables manufacturers to borrow funds based on their ongoing invoices. This means they will still have the cash flow ready to cover costs while they are waiting for outlying payment from clients, and can be an ideal solution to consider if you find your business has frequent cash flow gaps.
• Working capital loans: Tending to be paid back within a year or less, these short-term facilities are intended to address day-to-day expenses like payroll or inventory, and due to their term length, you’ll find they come with higher interest rates. We find manufacturers who are seeking a working capital loan tend to need cash to support ongoing operations during periods of revenue dips. However, each business will have its own unique needs.
• Equipment financing: Another option suited to manufacturers is that it is specifically for acquiring machinery and equipment. This facility typically uses the equipment itself to act as collateral, too, so the financing process is more simplified and makes it easier to acquire – if the lender offers it, each will have their own criteria and loan terms. That said, it can be ideal for upgrading technology or securing new machinery without needing to deplete your business’s capital.

Commercial Finance Application Process

The application process for most loans is pretty standard, whereby your prospective lender will request financial documents to be presented, almost always through an online portal, and you will go through the application process. At Nucleus Commercial Finance, with our required integration with Open Banking, business owners can apply for a loan, and have their application processed within minutes.

In many cases, we are also able to get the funding out to those businesses within the same day; too. However, not all lenders function like us. Below, we’ll run through the typical process involved in a loan application to give prospective borrowers a general idea of what to expect if they are looking to approach a lender.

• Initial inquiry: Before applying for a loan, even in cases where the application is online, part of your due diligence should be to first get in touch with a potential lender who offers the kind of facility you are after; you can then discuss your options and terms, as well as any criteria that are unique to that particular lender. During this period you can also gather information on other types of loans that might be more suitable, the interest rates and terms of these loans, as well as any additional conditions to determine the best option for your requirements.
• Documentation required: Lenders will always require some form of documents, and you can make a safe presumption that, at a minimum, they will want to see your business’s financial statements and its credit history. In some cases, lenders may also want to see your personal credit history, and it is also a good idea to put together a solid business plan to demonstrate to lenders that you have a clear goal for the funds, along with an exit strategy. All these documents will assist lenders in evaluating the standing of your business and your capacity to repay the debt.
• Approval process: When your application, along with any necessary paperwork that your chosen lender requires, is submitted, the lender will then carefully examine and evaluate all of the information. This assessment process should involve conducting a credit check of your business and analysing your finances to scrutinise any risks associated with you. How long your application takes to process will depend on the lender type, with traditional banks tending to take longer due to how rigorous their processes are and alternate lenders like us at Nucleus having the potential to approve your loan within minutes.
• Loan agreement: Assuming your application gets approved, your lender will then present a loan agreement that will outline in detail the terms, conditions, interest rates, and repayment schedules of your new facility. Once more, we advise that before you sign anything, you have your accountant or financial advisor look over the forms. Never sign anything unless you fully understand all of the terms and conditions.

Key Loan Considerations for Manufacturers

• Loan amounts: Determining the right loan amount for whatever it is you need funding for is strongly advised, as you don’t want to end up taking on too much debt. It will end up causing more financial damage than the loan was intended to resolve and this is again a reason why you should always consult a financial advisor before going ahead with your application. Manufacturers need to evaluate their requirements and ensure they borrow an adequate sum to cover their expenses without stretching themselves too thin.
• Interest rates: Depending on your lender and the terms you agree to, commercial loans can either come with a fixed interest rate or a variable one. With a fixed rate, the additional interest you pay back on your loan will remain consistent throughout your loan period, whereas a variable rate can change based on market conditions, and it really comes down to how well the economy is performing. There is a chance it could hike on a whim, but also, if the market and economy take an upturn, you may find yourself paying a lot less interest, so these are two important factors you should consider before committing.
• Repayment terms: Your repayment schedule will likely vary depending on whether you are seeking a short or long-term loan, and other factors like the type of loan you seek and the lender you approach will also determine these terms. With a standard term loan like the ones we offer at Nucleus, you can expect to make monthly repayments; however, for others, you should make inquiries and find a facility with a repayment schedule that fits your business’s capacity to repay.
• Collateral requirements: You will find that some commercial loan types will require collateral to be secured against the loan, or if your credit history isn’t excellent, directors may need to provide some security. This will typically come in the form of equipment or property, so the lender can minimise their risk when approving your finances. This is another important thing to do your due diligence on so you can fully understand the consequences should, for any reason, you later find your business is unable to keep up with repayments.

As with any facility, commercial loans work can be an exceptional tool for manufacturers who are looking for growth and expansion, and if they are in the right position to utilise them for the correct needs, and can maintain the repayment terms, there is no reason why taking on commercial debt will not work to achieve these aims. Always explore your options in detail before you commit to a lender, too, as you will find that between lender types and firms within those types, terms and conditions can vary widely, so do your best to ensure you are choosing the best product for your own unique needs.

For most lenders, a manufacturing loan application follows a standard process. The applicant contacts their prospective lender and provides personal details. You are then typically requested to complete an application form, and a credit check is performed to determine your business’s eligibility.

There is a lot more to the application process than these initial steps, so if you are a business owner looking to gain a better understanding, be it for a manufacturing loan or any other, read on, and we’ll touch on each of them to provide an overall view of what to expect.

Preparation Steps when Applying for a Loan

We are contacted daily at Nucleus by prospective borrowers, and the first thing we try to make sure is that the loan they are seeking is right for them, starting with its purpose and if the amount would be suitable. This is something business owners need to think about before any other steps, and it is also why we strongly advise before anything else that, if you are seeking finance, always speak to your accountant or financial advisor and get as much advice and guidance as you can before committing yourself.

• Assessing financial needs: As touched on above, your initial steps should involve taking the time to thoroughly determine the purpose of your loan, which in the case of purchasing equipment or managing day-to-day expenses, may seem straightforward, however, if it is for further growth, the size of the loan will need deep analysis and calculation. This is why discussing your ideas with your financial advisor can be important, as they will likely have a better grasp of your accounts than you and can help determine a loan amount that will meet your requirements.
• Preparing documentation: The criteria between different lenders will vary with regard to what documents they request. However, there are some you can be certain of, so having copies of or access to records of your financial statements, as well as tax returns and your credit history, will speed up the entire process. Some lenders will also request a business plan through which you can showcase your aptitude in the sector your business functions in, with the aim of building trust with your prospective lender. Together, these documents are used to look at the financial well-being of your business and its capacity to repay the loan you seek.
• Researching lenders: Once again, seeking guidance from your financial advisor or accountant when it comes to finding the best loan terms is advisable, as finding lenders who are best suited to manufacturers requires research. In any case, when comparing lenders yourself, be thorough and do your due diligence. We suggest you consider things like interest rates, term conditions, hidden fees, and additional loan conditions to find the best offer.

Loan Application Process

As mentioned previously, this is a standard process, with the primary differences coming between the type of lender you choose to borrow from. We’ll cover the typical steps that you will find common amongst all lenders below, however, to give you a general idea of what to expect:

• Initial inquiry: After your research on lenders is complete, you can start by reaching out to them to discuss possible loan options, and through this you can get a complete understanding of what that lender can provide, as well as the requirements for their application process.
• Submitting your application: Once initial inquiries are made and you are happy with your lender choice as well as their terms and conditions, you can send them all of the necessary documents that they request. You can expect to fill out your application form, typically online, and then provide your financial and business details.
• The lender’s review: Once you have submitted your application, your prospective lender will take their time to review it, and in the case of a traditional bank, this could take up to a week, or with a lender like us at Nucleus, a matter of minutes thanks to the use of Open Banking. The evaluation is done so the lender can assess potential risks involved in lending to your company, and can get a solid idea of whether you will be able to repay your loan or not.
• Approval and offer: If the lender’s review is a success and your application is approved, your lender should then present you with a loan offer that finalises the specific terms and conditions, interest rates, and repayment schedule. This all needs to be reviewed thoroughly, and again, we stress the importance of going over the loan with your accountant to ensure that it aligns with your business’s needs and capabilities to afford the debt.
• Acceptance and disbursement: If you are pleased with everything, you can then accept the loan agreement, and the lender will transfer the agreed upon sum of funds to the designated bank account as agreed upon. This will also include you signing the loan agreement, typically through an online portal, and completing any additional paperwork as requested by your lender. Following this, your repayments will proceed.

Tips for a Successful Commercial Loan Application

The following can broadly be applied to any loan application, so if business owners are looking for something less specific than a commercial loan, they can still take some advice below and apply it to their application plans.

• A detailed business plan: Although depending on the sums and the lender, a thorough business plan may not always be necessary, we still advise that you put together a clear outline for how you will use your loan along with expected outcomes and how you intend to repay all funds. If you don’t need to present it, you will have a detailed roadmap to refer back to in the future, and if you do, you can demonstrate to your lender that you have done your due diligence and have a solid repayment strategy in place.
• Strong financial statements: Make sure the financial statements you gather are recent and complete to leave no doubt with your lender about your business’s financial status. It is also important to have them in order, whether they are physical copies for scanning or digital, as any time your lender requests something, you want it on hand to ensure there are no delays between your application and the funds being deposited into your bank account.
• Good credit history: One of the most important deciding factors that any lender will consider when looking at your application is your credit history, and for businesses, scores above 80 are considered low risk. Below 20 is considered high risk, and lenders, at their own discretion, will decide if you are between 80 and 20 you are risk-free enough. You can lift and maintain a solid credit rating by paying your debts, bills, and credits on time, and ensure your history is good by keeping these payments up.
• Seek professional advice: It’s worth mentioning again because it is so important — always speak to your accountant or financial advisor when you are considering loans and lenders. The advice and guidance they can offer you on both the loan and the entire application process will be invaluable and should help you avoid getting yourself into a debt that is not ideal for your business or becomes an impossible struggle to repay.

The more you do your due diligence, speaking to lenders and advisors, and being clear on your chosen lender’s application criteria, the smoother the entire process will be, and we hope should bring more confidence in the choice of facility you make. Commercial loans, when utilised correctly, are a great tool for any business trying to achieve growth or maintain current operational standards, and while the decision to secure one should not be taken lightly, they can be extremely powerful for pursuing and obtaining your business goals.

There are many ways that manufacturers can utilise commercial finance; however, at Nucleus, we are approached most commonly for three primary reasons, especially when it comes to businesses looking to improve their revenue. Investing in equipment, expanding production, and ultimately improving cash flow, each leading directly to improved competitiveness and the ability for those businesses to grow in their market.

If you are a business owner who is trying to understand why a commercial loan could benefit your business, keep reading. We’ll expand upon each topic, hopefully illustrating what you could gain if you chose to secure a loan for your company and help you achieve these business goals.

Investing in New Equipment and Technology

No operation can run smoothly without equipment that isn’t performing at its peak, and all equipment only has a certain service life, so investment is inevitable. Let’s take a look at the main reasons why business owners come to us when looking for a loan to update their equipment.

• Modernising equipment: As mentioned, equipment has a service life; even equipment that is well tended to will eventually need replacing with new technology. Commercial loans can help with this, and they will improve your business’s production processes, which will inevitably see a rise in revenue.
• Increasing efficiency: Through transitioning to newer and more efficient equipment, your manufacturing firm can lower its production costs while increasing production output, and by producing more with less waste, you will find savings through reduced costs per unit to improve your profit margins.
• Staying competitive: Keeping up with your sector’s technological advancements is important for all businesses regardless of their industry, and for manufacturers, it can be the difference between falling behind on production techniques that may otherwise result in the loss of customers who will go to brands that can supply products quickly and at a better quality.

By investing in cutting-edge technology and equipment, manufacturers can innovate their operations, helping to introduce new products or improve their production rate and services. In most cases, this will draw in a larger customer base, increasing revenue and market share.

Expanding Production Capacity

Another area that commercial business owners can focus the use of a loan on is its production capacity. With that expansion, there will be more opportunities to create products, and it will also bring the opportunity to develop new products, hopefully leading to more customers. Let’s go into these points further below.

• Facility expansion: Manufacturers can use term loans to fund new facilities or develop their current ones. Expanding like this means production capacity will grow, too. More space means more orders can be taken, as you can meet any growing customer demands if expansion is your primary goal.
• Hiring more staff: With growth, it is inevitable that your business will begin to need more staff, and in this case business owners can use a working capital loan to support payroll, ensuring that your workforce and production continues to scale up alongside the demand of your products.
• New production lines: Financing can also be used to develop new products, whether that be through new machinery or research and development into new ideas. Introducing product lines like this will not only open up new revenue streams, but if the product is successful, it will also attract a wider customer base, again contributing to overall revenue expansion.

Overall, expanding production opportunities brings many benefits aside from just the revenue increases, and with the right business plan for your loan, you can utilise it to succeed in growing in your market.

Improving Cash Flow Management

The purpose of any loan should ultimately be to make more money, and through different commercial loan types, as well as reasons for taking on those loans, you can improve your different avenues of revenue. Let’s take a look at some loan types aside from the previously mentioned term loans that we often discuss with manufacturers when they are trying to achieve long-term growth.

• Invoice financing: It is not uncommon for large and even smaller businesses to have many outstanding invoices, and invoice financing works by granting them access to that unpaid cash to help ensure their operations continue to run smoothly. Once those invoices are paid and the cash flow gap is bridged, the debt can be topped up and essentially role like credit to ensure your business can continue to meet its financial and operational commitments.
• Lines of credit: A line of credit makes predetermined sums of money available to business owners who need to maintain their liquidity and can be used to cover their day-to-day expenses such as raw materials or workforce salaries, and because you only need to repay the amount you actually use from the predetermined sum, a line of credit is like having an emergency fund that can be quickly accessed if and when needed.
• Seasonal adjustments: For manufacturers who find themselves facing demand fluctuations, whether it be due to seasonal sales, holiday seasons, or otherwise, managing cash flow effectively will be crucial for long-term survival, and these two commercial finance options are a great way to keep production functioning during slower cash flow periods.

Obtaining commercial finance can offer great solutions to business owners who are pushing for growth and an increase in revenue, and if utilised correctly, it can provide the financial support needed to achieve this. As usual, we also suggest that if you are considering a loan for your business, always speak to your accountant or financial advisor first and do your due diligence on loan products to get a full grasp of what they can do for you and if they will be a benefit to your business long term rather than a financial hindrance.

To demonstrate the uses a manufacturer can gain through a loan we can look at one of our own client success stories, that being MCJ Fabrications Ltd, where unexpected financial challenges threatened their survival. Through this case study, we hope to demonstrate how our services, and the use of a loan in general, can be utilised in cases of emergency to help otherwise thriving businesses recover and continue to grow.

The Challenge

MCJ Fabrications specialises in designing and manufacturing bespoke products like steel staircases for construction projects, and when two of their major clients suddenly went bankrupt, the business owners suddenly found themselves in a troublesome financial situation. Mick Fortune, one of MCJ’s directors, first turned to the banks in hopes of finding some help, but the kind of support they needed was denied. Desperate for a viable financial solution, the business approached several invoice finance lenders in efforts to explore other options, which they needed quickly to avoid falling under themselves.

The Solution

Once Mick found us, we took the time to understand his predicament and analysed the business’s case based on its individual merits. Once satisfied, we moved quickly to secure the funding for MCJ that they needed, and it turned out to be a bespoke invoice finance facility that we provided with competitive rates and perfectly suited to MCJ’s immediate and longer-term needs.

Implementation

We always say at Nucleus that we take each business that approaches us as a unique case, and we differentiate ourselves from traditional banks by taking our time to understand your business and your unique challenges and goals. By focusing on this with MCJ and covering their specific circumstances, we were able to quickly deliver a tailored invoice finance facility to stabilise their operations while they recovered from their major client losses.

Benefits and Outcomes of MCJ’s Loan

• We stabilised their operations: Because we were able to get their funds to them so quickly, MCJ could handle their cash flow disruptions and keep their operations stable, allowing them to continue with their current projects and also meet their ongoing financial obligations.
• They expanded their workforce: Once the crisis was mitigated, MCJ then went on to focus on further expansion, and to do this, using our funding as support, they brought on new staff members to handle more projects.
• They increased their turnover and profited: Once they had restabilised themselves, MCJ went on to boost their revenue and profitability, returning their operations to profitability and securing themselves in the competitive manufacturing industry.

Testimonial of Mick Fortune, Director at MCJ:

“The invoice finance services Nucleus gave us were competitive, flexible and transparent. Most importantly, though, it allowed us to move fast and stay in business.”

We hope this case study demonstrates just how crucial a loan can be for businesses, not only when they’re in moments of need but also to continue growing and succeeding with the funds. At Nucleus, we currently offer term loans and revenue-based loans, with term loans ranging between £10k and £2m and terms of 3 months to 6 years, and our revenue-based solution starting at 3k to £300k and terms of 3 to 12 months.