Quick answer
Manufacturers usually borrow for machinery, raw materials, work in progress, factory fit-outs and the gap between buying inputs and being paid by customers. Equipment finance suits most production machines, invoice finance and lines of credit cover working capital, and property-secured loans fund factories or larger expansions. Lenders look at the resale value of your machines, how concentrated your customer list is and how long cash sits in stock before it comes back.
Key points
- Cash in a factory moves through three stages (raw materials, work in progress, finished goods) before an invoice is even raised, so the funding gap is longer than most service businesses face
- Lenders value standard machines from known brands far more highly than custom-built lines, which affects deposits and how much you can borrow against equipment
- The refundable R&D tax offset for companies under $20m turnover arrives only after the tax return is lodged, so some lenders advance funds against the expected refund
- A single customer making up a large share of sales is the most common reason a manufacturer gets less than it asked for
Ask a manufacturer where their money is and the honest answer is usually “on the factory floor”. It’s in steel coil waiting to be cut, in half-assembled units on the line, in pallets of finished product waiting for a truck, and in invoices a customer won’t pay for another two months. Very little of it is in the bank.
That’s what makes manufacturing finance different. A café is paid at the counter. A factory may wait three or four months between buying materials and seeing the sale clear. Lenders who regularly fund manufacturers know this, and the best ones structure facilities around it.
How do lenders look at a manufacturing business?
Credit teams generally like manufacturers. Factories have tangible assets, skilled staff, repeat customers and contracts that run for years. But they also carry particular risks, and a lender will test each one.
Machinery resale value. A press brake, laser cutter or injection moulder from a recognised maker has an active second-hand market, both here and overseas. A purpose-built line designed for one product doesn’t. Lenders lend more readily, and ask for smaller deposits, on machines they could sell.
Customer concentration. If one retailer, builder or government contract makes up a large share of your sales, lenders worry about what happens if that customer leaves or pays late. Expect questions, and possibly a smaller limit on any invoice facility.
The length of the cash cycle. Lenders compare the days you hold stock, the days customers take to settle and the days of credit your suppliers allow. Every extra day in that gap needs funding. Our glossary entry on the working capital cycle explains the arithmetic.
Input costs. Energy, steel, resin and freight prices have all moved sharply in recent years. Lenders like to see that your contracts let you pass on cost increases, or that your margins can absorb them.
What finance matches each part of a factory?
| What you’re funding | Finance that usually fits | Why |
|---|---|---|
| Production machinery | Equipment finance or a chattel mortgage | The machine secures the loan and the term matches its working life |
| Raw materials for a big order | Trade finance, line of credit or short-term loan | Repaid when the order ships and is paid |
| Unpaid customer invoices | Invoice finance | Releases cash tied up in debtors without waiting 30 to 90 days |
| Factory fit-out, power upgrade, racking | Term loan or property-secured loan | Hard to secure on its own, so it’s backed by the business or property |
| Buying the factory | Commercial property loan | Long term, secured by the building |
| Month-to-month swings | Business line of credit | Used when an order lands, cleared when it’s paid |
Many manufacturers end up with two or three facilities working together: equipment finance on the machines, invoice finance over customer invoices, and a credit line or property loan for everything in between.
How does the R&D tax incentive affect your cash flow?
Plenty of Australian manufacturers do eligible research and development: new materials, new processes, prototypes, testing. Where a company’s aggregated turnover is below $20m, its R&D tax incentive comes as a refundable offset, so a loss-making or low-profit company can receive cash back rather than simply paying less tax.
The catch is timing. You spend on R&D throughout the year, register the activities with AusIndustry within ten months of year end, then claim the offset in your company tax return. The refund can arrive many months after the money was spent. Some specialist lenders will advance a portion of the expected refund, repaid when the ATO pays out. If you’re planning a development project, see our page on funding research and development.
The federal Industry Growth Program is also worth knowing about. It offers advisory support and matched grants for small and medium businesses commercialising new products. Grants rarely cover the whole cost, and they’re typically paid against milestones, so finance often bridges the gap between spending and reimbursement.
Considering a new machine or a large order? Outline it for us here; a specialist reviews it and your credit file isn’t checked.
Machinery, tax and the write-off threshold
The instant asset write-off lets small businesses with turnover under $10m deduct the full cost of eligible assets below a set threshold, applied per asset. The threshold has been $20,000 in recent years. It’s useful for tools, small machines and IT, but most production equipment costs well above it and is depreciated in the normal way. Check the current status with your accountant before relying on it for a purchase, because the rules have changed several times.
Either way, the tax treatment shouldn’t drive the decision. Buy the machine because it makes or saves money, then choose the finance structure that best fits your cash flow. Our equipment finance calculator shows the repayments for a given price, term and balloon, and buying machinery compares the options in detail.
Risks that come up in manufacturing loan applications
- Customer loss. A large customer moving production offshore or to a competitor.
- Imported competition. Cheaper imports can squeeze margins quickly.
- Machine breakdown. A single critical machine failing can stop the whole line. Lenders like to see maintenance records and insurance.
- Contract terms. Fixed-price contracts without cost-escalation clauses expose you to input price swings.
- Retention of title. If your suppliers retain title to materials until paid, that affects what a lender can take as security. The PPSR records these interests.
- Tax arrears. BAS or PAYG debts are common in growing factories and need to be disclosed.
Documents lenders will ask for
- The last two years’ accounts and tax returns, along with up-to-date management figures
- Recent business bank statements, usually half a year to a full year
- Aged debtors and creditors reports
- A customer list with each customer’s share of sales
- A list of your machines with their age, condition and anything still owing on them
- Quotes for new equipment, including installation
- Key contracts or purchase orders for any large job you’re funding
Example: a fabricator buying a laser to win a contract
An illustrative scenario. A metal fabrication business in Melbourne’s south-east turns over about $4.2m a year, with work spread across around 40 builders and engineering firms. It has been offered a three-year supply contract that needs a fibre laser cutter costing about $480k installed, plus roughly $150k of extra steel and labour in the first two months before invoices are paid.
The bank is willing to fund the laser but wants the directors’ homes as security, and its approval will take several weeks. The owners finance the laser through a non-bank equipment lender on a chattel mortgage with a small residual at the end, secured on the machine itself. They set up an invoice finance facility over their builder debtors to fund the extra steel and wages. The lender caps any single debtor at a set share of the facility, which is fine because the new contract will be one customer among many.
Talk to someone who understands factories
Manufacturing finance works best when each part of the cash cycle has the right facility behind it, rather than one loan stretched to cover everything.
If you’d like to see what’s possible, enquiring takes roughly sixty seconds and leaves your credit history untouched. Nobody else gets your details from us as part of a mass mail-out. An actual specialist works through your enquiry, considers your machines, customers and order book, and phones you. Precise answers on turnover, current finance and the purpose of the funds help us put a workable option in front of you straight away.
Frequently asked questions
What's the best loan for buying a CNC machine or press?
Usually equipment finance, either a chattel mortgage if you want ownership and the tax deductions, or a lease if you'd rather upgrade later. Standard machines from established brands get the best terms because lenders know they can resell them. Installation, tooling and training are often funded separately.
Can I borrow against my stock and work in progress?
Finished goods can sometimes support stock finance or a trade facility. Work in progress is much harder, because half-made products have little value to anyone else. Most manufacturers fund it through a line of credit, invoice finance on completed sales, or a loan secured against property.
Can I get finance against my R&D tax incentive refund?
Some specialist lenders advance part of an expected refundable R&D offset before it's paid, using your registration with AusIndustry and your accountant's estimate. They'll want a clean claim history and a reputable adviser. The advance is repaid when the refund arrives.
My biggest customer takes 60 days to pay. What helps?
Invoice finance is designed for exactly this. It releases most of an invoice's value soon after you issue it, rather than when the customer pays. Lenders may limit how much of the facility can rely on one customer, so diversifying helps.
Will a bank lend to my manufacturing business?
Often, yes, especially if you own the factory or have strong financials, and bank pricing is hard to beat. If the bank wants more security than you have or moves too slowly for an order, non-bank equipment, invoice and property lenders can fill the gap.