How manufacturers fund stock and machinery without starving either

Ask a manufacturer what the business needs and the answer is often “a new machine”. Look at the bank statements and the problem is frequently the opposite end of the plant: raw materials paid for in advance, goods sitting on racks, and customers who pay in 45 days. Both are funding needs, but they are different needs, and treating them as one is how good factories run short.

Where does a manufacturer’s cash actually sit?

A manufacturer’s money is spread across the production line. A sale is only the last step. Before it, cash is locked in three places:

1. Raw materials. Steel, resin, timber, flour, fabric or components, paid for on supplier terms or up front.
2. Work in progress. Materials plus labour plus machine time, partway to something sellable.
3. Finished goods. Complete stock waiting for dispatch or a customer’s order.

Then the invoice goes out and the customer pays on terms. The time from paying the supplier to being paid is your cash conversion cycle. A plant that holds 40 days of stock, takes 45 days to collect and pays suppliers in 30 has about 55 days of its costs permanently tied up. When sales grow, that number grows with them, which is why a busy manufacturer can feel poorer than a quiet one.

The working capital cycle entry explains the idea in plain terms, and the inventory management guide shows how to shorten it.

Why should stock and machinery be funded differently?

They behave differently. Stock turns over many times a year. Machinery earns slowly, over its whole working life.

	Stock and materials	Machinery
Lifespan	Weeks to months	5 to 15 years
Cash returns	Within the production cycle	Spread over years
Suitable funding	Revolving or short-term working capital, invoice finance, supplier terms	Equipment finance, chattel mortgage, lease
Wrong funding	A long loan that outlives the stock	A short loan that demands heavy repayments
Security	Often weak	The machine itself

If you use cash from working capital to buy a machine outright, the machine works, but suddenly you cannot afford the next load of steel. If you finance a machine over five years and the repayments sit comfortably inside the extra contribution it generates, the working capital stays free to run the plant. The comparison between a chattel mortgage and other structures covers how the asset itself becomes the security.

How does the $20,000 instant asset write-off fit?

This is a useful rule, but it is often misunderstood. The ATO says the $20,000 instant asset write-off threshold is permanent from 1 July 2026. It is available to small businesses with aggregated turnover under $10 million, and it applies per asset, so a business can write off several assets that each cost under the limit.

For manufacturers, that tends to cover things like:

• hand tools and power tools;
• jigs, fixtures and workstations;
• smaller CNC accessories, compressors and welders;
• forklifts or pallet jacks at the lower end of the price range;
• packaging and labelling equipment.

It does not cover a $180k press brake or a robot cell, which are depreciated under the ordinary rules. The ATO also says the rules that stop small businesses re-entering the simplified depreciation regime for five years after leaving it stay suspended until 30 June 2027, which may matter if you chose to exit it in the past. The deduction reduces tax, it does not provide cash up front, so you still need to fund the purchase. Our guide to the write-off and equipment finance covers the timing. Ask your accountant before you buy.

Which funding fits which job?

Banks are frequently the cheapest funding for manufacturers with a steady track record, and they offer overdrafts, trade lines and equipment loans. If yours will lend on terms that suit, take it seriously. The alternatives matter if the bank has declined, if you need more speed than its process allows, or if the plant has grown faster than its limit.

For stock and wages

• Working capital loans for a lump sum to buy materials ahead of a big run.
• Invoice finance to release cash from unpaid invoices sooner, which shortens the cycle without adding fixed repayments.
• Trade finance where materials come from overseas and shipping time stretches the cycle.

For machinery

• Equipment finance or chattel mortgage, with the machine as security.
• Finance lease or hire purchase where ownership or residual structures suit.
• Sale and leaseback if you own equipment outright and want to release working capital from it.

For both

• A property-secured facility, where you hold equity. Larger limits and lower costs can result, at the price of putting property at stake.

What do lenders look at in a manufacturer?

They want to understand the cycle. Expect to supply:

• BAS and financials for the last two years;
• an inventory schedule split into raw materials, WIP and finished goods;
• a debtors ageing report;
• customer concentration: which buyers account for most of your sales;
• a quote for any machine, with details on what it does to capacity and margin;
• maintenance records for existing plant;
• details of orders or contracts on hand.

Concentration is a common sticking point. A plant that depends on one retail chain will be assessed differently from one with fifty trade customers. If a single customer accounts for most of your sales, say so up front and explain the contract.

A worked example

This is an illustration only. A food packaging manufacturer turns over $3.2 million a year. It has a chance to supply a national grocery brand, which needs a second filling line.

Funding need	Amount	How it was funded
Filling line	$210,000	Equipment finance over 5 years
Extra raw materials and packaging for the first run	$85,000	Working capital facility
Wages and freight until first payment (45 days)	$60,000	Invoice finance on the new customer’s invoices

The owner could have borrowed $355k as one lump and repaid it over 12 months. The monthly repayment would have been close to the profit the new line produced, leaving no room for a bad month. Splitting the funding means the machine’s repayment is a five-year commitment that the line comfortably covers, while the materials and wage float are funded in line with the cycle and fall away as invoices are collected.

The extra line only makes sense if the contract’s volume is secure, so the owner asks the customer for a written volume commitment before signing. If you are weighing something similar, tell us about it in a quick enquiry and we will help you think through the structure.

Common mistakes

• Buying machines with working capital. The plant runs, but there is nothing left to feed it.
• Over-focusing on the machine’s price. Installation, training, tooling and downtime can add materially to the real cost.
• Ignoring the stock the machine will create. A faster line produces more WIP and more finished goods, and both need funding.
• Taking a long loan for a short job. A five-year loan for a six-month stock spike leaves you paying long after the benefit ends.
• Skipping the second quote. Equipment finance terms differ, and the total repayable in dollars is the number that matters.

For specific purposes, see funding for machinery and funding for stock and inventory.

Weighing up the next machine or the next big order?

If the numbers show a gap, or you are unsure how to split the funding, that is a good moment to talk to someone who sees these structures weekly. The aim is to match each dollar to the job it does.

The enquiry takes around a minute. Making it will not touch your credit file, and we do not hand your details to a pile of lenders, so you will not be flooded with calls. A real person reads your situation and rings you. Please be as accurate as you can about turnover, the amount, and what it is for, so the first option we suggest fits.

Get the stock and machinery funding sorted →