How to Secure a Business Loan for Plastic Bag and Pouch Manufacturing

Around 1 trillion plastic bags are manufactured each year for grocery stores and shops alone, and that doesn’t even include many plastic pouches and packaging options available to businesses today. Modern plastic packaging manufacturing depends on advanced equipment and technology, such as extruders, printers, and sealing machines... all of which can be quite costly.

Whether you’re looking to purchase new equipment, used equipment, or a combination of the two, manufacturing equipment financing solutions can give you the funds you need to begin producing and distributing products. Read on to learn more about business machinery loans for small business, eligibility requirements, the loan terms available, and how manufacturing equipment financing can help you leverage debt to grow your business.

Assessing Equipment Needs and Costs

Before you’re ever ready to shop for manufacturing equipment financing solutions, you should first spend some time deciding exactly what kind of business equipment you need to become (and stay) operational. This will give you an idea of cost breakdown and the typical investment ranges for each equipment purchase type, and helps you determine your individual financing needs.

Depending on the products you want to manufacture, equipment could include:

• Extruders
• Printing machines
• Pouch forming machines
• Die wheels
• Presses and sealing units
• Rolling, winding, and cutting machines

Being strategic about your manufacturing equipment financing approach helps you maintain liquidity, buy the industrial equipment you need without providing the full price upfront, and even enables small businesses to scale without draining reserves.

Types of Equipment Financing Options

Depending on the manufacturing equipment needs of your plastic bag or pouch business, your financing options may vary.

Dedicated Machinery Loans

One of the benefits of equipment financing is that there are some loans available for specific machinery needs. Also known as equipment loans, these give business owners access to whichever piece of equipment they need for their plastic bag company while securing the debt with the asset (machine) itself. These loans are common with construction equipment and other high-value machinery like manufacturing equipment.

This is beneficial in a few ways. Since these equipment financing programs use the machinery as collateral to secure the debt, the credit approval requirements may be easier to meet than an unsecured loan. Some of these loans also act as an operating lease, giving you access to the right equipment for a specific period of time until you learn if it meets your specific needs.

Small Business Loans

Loans are a very common form of manufacturing equipment financing, providing borrowers with an upfront lump sum that can be used to purchase plastic bag manufacturing equipment, supplies, or even use as working capital when needed. These are usually installment loans, meaning they’re repaid over a set period of time with set monthly payments.

Since small business loans can be unsecured in some cases, eligibility will depend on your business and personal credit score, financial history, annual revenue, and even your business plan. If you qualify, these loans can be found through many standard banks and credit unions. Some business loans are also backed by the Small Business Administration (SBA), also known as SBA loans, though they’re still funded by member FDIC banks.

Leasing vs. Buying

On the note of leasing, it’s important to note that equipment leasing options can be a lower upfront-cost alternative to buying outright. Borrowers can use equipment leasing to “test out” machinery for a defined period of time. At the end of the lease terms, owners can reevaluate their business needs and whether the equipment is right, then either give the machinery back or buy it out from the lender.

Equipment Line of Credit

A plastic bag and pouch manufacturing equipment line of credit gives you access to pre-approved credit, similar to a revolving credit card, that you can pull from when you need. These business banking products can be used as an alternative to machinery loans, since you can pull from them to buy machinery (assuming you have the credit limit necessary). You can also use a business line of credit to cover your business’s cash flow needs, purchase supplies, and more.

Unlike most manufacturing equipment financing options, lines of credit are renewable. This means that even if you borrow against one, you can pay down your balance and have access to that credit again. You also won’t pay any finance charges unless you’re carrying a balance. (Be sure to read your disclosures, though, as many lines of credit have annual fees that will cost you money each year even if you don’t borrow.)

Preparing a Strong Business and Equipment Financing Proposal

In order to qualify for most manufacturing equipment financing options, you’ll need to meet certain lender criteria and demonstrate that you’re a strong, reliable borrower. This means maintaining a healthy credit score, cash reserves, and business revenue.

Many lenders will also want to see a customized business plan for your plastic bag or pouch business, especially if you’re taking out an SBA loan. Since manufacturing equipment is often very costly, lenders want to be sure that you can not only qualify for the loan but also repay the debt as promised. Your business plan should emphasize your expected return on investment (ROI) from the machinery you’re trying to buy, as well as usage plans and productivity projections that show how important it will be to growing your business.

Key Financial Documentation and Credit Readiness

As part of the application and underwriting process for manufacturing equipment financing, lenders will often ask you to provide a number of financial documents. These give lenders a better idea of how your plastic bag or pouch business operates and what you can afford to borrow.

These documents will vary by lender but may include:

• Financials like cash flow statements, bank statements, tax filings, and purchase orders.
• Vendor quotes and invoices.
• Personal and business credit documentation that proves and supports your score. (It’ll also help determine the interest rate you’re offered)
• Collateral options if you’re unable to get the unsecured loan you want or want to reduce your interest rate. While the equipment often serves as collateral — especially with an equipment loan — other assets like bank accounts, real estate, or other valuable equipment can be collateral, too.

Comparing Lenders and Loan Products

Shopping around and comparing loan options will not only enable you to find the best lender and loan qualifications, but also help you build a loan with the best interest rate and repayment terms.

As part of your search for manufacturing equipment financing, you should look at traditional banks, credit unions, equipment financing specialists, non-banking financial companies, and fintechs offering machinery loans. Be sure to compare their fees (origination, application, processing, etc.) as well as available interest rates, down payment requirements, and repayment terms. Some lenders also allow you to roll maintenance packages, extended warranties, and equipment insurance into your loan, to limit your out of pocket expenses

Application Process for Equipment Financing

The process for applying for manufacturing equipment financing is a bit different than taking out a small business loan, but there are many similarities. Again, be sure you’ve done your research first and understand exactly what equipment is right for you and your plastic bag business, how much it costs, and what your small business can afford to repay each month.

Once you have a vendor quote for the plastic bag equipment costs, you can start applying. This may mean submitting an application online, over the phone, or even in-person at a bank branch. You’ll usually be asked to provide certain documentation upfront, like the equipment cost, income or bank statements, and more.

After your application is submitted, there is often a waiting game. During this time, lenders will analyze (underwrite) your application to make a loan decision and choose the repayment terms available to you. After your loan is approved, disbursement can be speedy.

Alternatives to Traditional Equipment Financing

There are also a few other alternatives to traditional manufacturing equipment financing for plastic bag and pouch businesses, beyond standard loans and equipment leasing.

• Rent-to-own models: Rent-to-own works similar to leasing in that you are paying a monthly payment for equipment that you’re using but don’t technically own. At the end of the rental period, you have the option to buy out the balance and own the equipment at a then-accurate value.
• Supplier credit or deferred payment plans: Some equipment manufacturers and suppliers will allow you to take out a deferred payment plan, which means you can buy the equipment you need today and pay for it later. Also known as trade credit, these direct loans are usually short-term in nature.
• Used or Refurbished Machinery Loans: Buying equipment that’s either been used or refurbished will not only save you money, but might give you access to manufacturing equipment financing options that are easier to get.

Final Thoughts

Manufacturing equipment financing is often a key to scaling your plastic bag and packaging businesses. The right financing — whether a loan, line of credit, or lease agreement — can get you the right equipment you need to start, expand, or acquire your business. With the right documentation, business plan, a detailed equipment needs assessment, and access to lenders offering dedicated equipment loans, you’ll be well on your way to whatever capital funding your small manufacturing business needs.

FAQs on Manufacturing Equipment Financing

What is the loan-to-cost value on my manufacturing equipment?

One important variable for manufacturing equipment financing lenders is the equipment’s loan-to-cost (LTC) value. This ratio shows how much of the equipment’s cost you are financing, versus what’s being offered as a down payment. Some lenders have maximum LTCs and you may be required to offer a bigger down payment.

What are most plastic bags manufactured from?

The majority of plastic bags are made from a polyethylene resin. To make these bags, special manufacturing equipment is required.

What type of machinery is required to manufacture plastic bags?

Depending on the type of product being made, manufacturing a plastic bag might require an extrusion machine, printer, die wheel/cutter, sealing machine, pouch-forming machine, and more.

Do I need special equipment to make biodegradable or eco-friendly plastic bags?

Making plastic bags that are better for the earth requires unique supplies and, in some cases, unique equipment. For example, bags with woven material may need special die cutting while biodegradable films might not go through traditional cutting and sealing machines the way polyethylene does.

How long does it take to get approved for manufacturing equipment financing?
Approval timelines vary by lender and loan type, but many equipment loans can be processed and funded quickly. SBA loans and traditional bank loans may take several weeks due to more complex underwriting requirements.

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