Quick answer
Manufacturers usually need finance for machinery and plant, for raw materials and work in progress, and to bridge the long gap between buying inputs and being paid by customers. Lenders consider the machinery's resale value, order book, customer quality and margins. Equipment finance, trade finance, invoice finance and lines of credit are the main tools, often used together.
Key points
- Cash is tied up in raw materials, work in progress and finished goods.
- Machinery is often financed with the asset as security.
- Customer payment terms extend the cash cycle further.
- A strong order book helps lenders back growth.
At a glance
- Typical needs
- Machinery, raw materials, work in progress, expansion
- Common facilities
- Equipment finance, trade finance, invoice finance, line of credit
- Lender focus
- Order book, customers, margins, asset resale value
- Watch for
- Specialised machinery with limited resale markets
Manufacturing has one of the longest cash cycles in business. Raw materials are bought, turned into work in progress, finished, stored, shipped and invoiced, and only then does the customer’s payment term begin. A growing manufacturer can be profitable on every order and still feel permanently short of cash, because each new order ties up more money for longer.
Where the money goes
| Stage | Cash tied up in |
|---|---|
| Purchasing | Raw materials and components, often paid on order or delivery |
| Production | Labour, energy and overheads on work in progress |
| Finished goods | Stock waiting to be shipped |
| Receivables | Invoices waiting on customer terms |
Our guide to the working capital cycle shows how to measure each stage. Shortening any one of them frees cash without borrowing.
Finance that fits manufacturing
- Equipment finance for machinery, tooling, forklifts and production lines, with the asset as security.
- Trade finance to pay suppliers, particularly for imported materials.
- Invoice finance to release cash once goods are invoiced.
- Lines of credit for recurring purchasing and payroll gaps.
- Secured business loans for expansions, factory purchases or large projects.
What lenders look at
Lenders want to understand the order book, the quality and concentration of customers, gross margins and how much cash is tied up in stock. For machinery, resale value is critical: widely used machines are easy to finance, while bespoke equipment may need more security. Financial statements, aged receivables and stock reports are standard requests for larger facilities.
Before buying new machinery
Test the return. Estimate the extra output, labour savings, reduced waste or new contracts the machine will bring, and compare with the full cost of owning it, including finance, installation, training and maintenance. Our guide on testing equipment return before borrowing offers a simple framework.
An illustrative example
A made-up metal fabricator wins a contract that doubles monthly output for a year. It finances a new CNC machine with a chattel mortgage, uses invoice finance on the new customer’s invoices and increases its line of credit for steel purchases. Each facility does one job, and together they cover the full cycle from steel delivery to customer payment.
Strengthening a manufacturing application
Manufacturing lenders want to understand the business behind the machines. Bring recent financial statements, aged receivables and stock reports, your order book or key contracts, and quotes for any equipment. Explain your gross margin by product line if it varies significantly, and show how long each stage of your cycle takes. If one customer dominates sales, describe the relationship and contract terms.
For machinery, include details of the supplier, whether the item is new or used, installation costs and the expected productivity gain. A lender that can see how the machine pays for itself is more likely to back it on good terms.
Questions to ask before you borrow
- How long will the machine stay competitive, and does the term match?
- Are installation, training and commissioning costs included in the finance?
- Can the trade finance facility pay suppliers in their currency, and how is the exchange handled?
- What happens if a large customer pays late?
Finance for your manufacturing business
If machinery, materials or customer terms are stretching your cash, finance matched to each stage of production can help. To explore options, make one enquiry. There is no credit check when you first enquire, a real person reviews it and your details go to one lending partner rather than many. Describe your production cycle and what the funds are for in your enquiry.
Frequently asked questions
Can specialised machinery be financed?
Yes, although lenders consider resale value. Highly specialised machinery may need a larger deposit, a shorter term or additional security.
How do manufacturers fund raw materials?
Trade finance can pay suppliers, a line of credit can cover recurring purchases, and invoice finance can release cash once goods are invoiced to customers.
Does a large order help me get finance?
A confirmed order from a creditworthy customer can strengthen an application, particularly for working capital to fulfil it. Lenders may ask to see the purchase order or contract.
Is the instant asset write-off relevant to manufacturers?
It may be for eligible small businesses buying qualifying assets, subject to current thresholds and rules. Check the ATO guidance and your accountant.
What if my customers are overseas?
Export receivables can be harder to finance. Export Finance Australia and Austrade provide information and some support for exporters.
Sources and further reading
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