Where does cash get tied up in a manufacturing business?
In a manufacturer, cash leaves long before it comes back. You buy steel, resin or components, carry them through production as work in progress, ship finished goods, then wait 30 to 60 days or more for the customer to pay. A bigger order stretches every stage of that cycle at once.
Pressure points we hear about from established shops:
- A customer doubles its annual order, and raw material purchases must happen months before the first invoice.
- A supplier shortens its payment terms, while customers keep theirs long.
- The bank line that absorbed these swings is reduced at renewal.
How do manufacturers finance machinery and plant upgrades?
Machinery usually belongs on equipment financing or a term loan, with payments spread over the asset's useful life. A new CNC machining center, a press brake, a laser cutter or an automated packaging line can be financed with the equipment as collateral, which keeps the credit line free for materials and receivables.
Plant improvements that are not movable equipment, such as electrical upgrades or reconfiguring a floor for a new cell, are typically funded with a term loan instead. For machine purchases, our equipment financing page covers loan-versus-lease and lien choices.
How should a manufacturer use a credit line?
Use the line for the production cycle: buying raw materials, carrying work in progress and bridging receivables until customers pay. Draw when a large order starts, repay when invoices are collected. For secured lines, availability is often set by a borrowing base of eligible receivables and inventory reported on a regular schedule.
Funders usually value raw materials and finished goods differently from work in progress, which is harder to sell if something goes wrong. Keep inventory records accurate and your receivables aging current; both directly affect how much of your line is available. See business lines of credit for how limits are sized.
What do underwriters look at for manufacturers?
Beyond tax returns and financial statements, underwriters for manufacturers typically review gross margins and how they held up when material costs moved, customer concentration, backlog and order history, inventory turnover, equipment age and value, and whether capacity is already stretched. Documented cash flow that covers existing debt plus the new payment is central.
- Concentration: if one customer is a large share of sales, expect questions about contracts and payment history.
- Backlog: purchase orders and contracts help explain why an expansion is needed now.
- Margins: a clear explanation for any dip, such as a one-time material spike, helps.
Can capacity expansion be financed before new orders arrive?
Sometimes, but it is a harder request. Funders are more comfortable when expansion is supported by signed contracts, a documented backlog or a history of turning away work. Without that, expect a smaller amount, a request for more of your own cash in the project or a structure that funds in stages.
Build the case with numbers: current utilization, the orders you declined, the new equipment's output and a realistic ramp-up period before payments become comfortable. Our guide to funding an expansion with a term loan explains what projections underwriters expect.
What you’ll typically need
- Business tax returns and year-to-date financial statements
- Accounts receivable and payable aging reports
- Inventory report by raw materials, work in progress and finished goods
- Equipment list or vendor quotes for new machinery
- Schedule of existing business debts and leases
Frequently asked questions
Can inventory and receivables support a manufacturer's credit line?
Often, yes. Secured lines commonly use a borrowing base built from eligible receivables and inventory. Funders typically treat raw materials and finished goods more favorably than work in progress, and they exclude receivables that are very old or owed by related companies. The rules vary by funder.
How is used production equipment valued?
Funders look at make, model, age, hours, condition and how easily the machine could be resold. Standard machines with active resale markets are usually valued more favorably than highly customized equipment. A detailed quote or recent appraisal helps the funder set the financed amount.
Do lenders care about customer concentration?
Yes. If a single customer represents a large portion of your sales, a slowdown or late payment from them affects your whole cash cycle. That does not rule out financing, but funders may size the facility conservatively and ask about contract terms and relationship history.
Should a manufacturer keep equipment and working capital with separate funders?
Many do. Financing machinery separately with a specific lien keeps other assets available for a working capital line and adds a second funding relationship if the bank changes course. Check existing agreements for restrictions on additional debt and liens first.
What if our margins dropped last year because of material costs?
Explain it clearly and show what changed since. Underwriters look at trends, so evidence of price increases passed through to customers, new supplier agreements or recovering year-to-date margins can offset a weaker year. Your CPA can help present the numbers accurately.
Fund the next production run or the next machine
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Updated September 14, 2026 · 1Prime Capital Funding Team