Quick answer
Manufacturers use property-secured loans to buy raw materials for large orders, carry work in progress and finished goods, fund equipment deposits, purchase or expand factory premises and smooth long customer payment terms. Secured against factory premises, a home or investment property, these loans can be larger than turnover-based facilities, with interest prepaid or capitalised until orders are paid.
Key points
- Funds materials and labour for large orders
- Carries work in progress and long customer terms
- Factory premises are strong security
- Deposits on equipment and expansion
- Exit: order payments, refinance or trading cash flow
Manufacturing ties up cash at every stage
From the moment a manufacturer accepts an order, cash starts flowing out: raw materials, components, energy, labour, packaging and freight. The product may take weeks to make, then sit in finished goods until shipped, and the customer may pay on sixty or ninety day terms. The bigger the order, the bigger the hole in the bank account.
That is the paradox of growth in manufacturing: winning a major contract can be the moment cash runs out.
How manufacturers use property-secured loans
- Large orders. Funding materials and labour for a contract that would otherwise stretch the business beyond its limits.
- Working capital through long terms. Carrying receivables from major customers who insist on extended payment terms.
- Equipment. Deposits or full funding for machinery needed to win or deliver work, particularly when equipment finance is slow.
- Factory purchase or expansion. Buying the building the business leases, or the one next door. See commercial property loans.
- Tax and creditor pressure. Clearing ATO arrears or supplier balances that built up during a slow period.
Factory premises as security
Industrial property is often strong security. Many manufacturing businesses or their owners own their factory through a related trust. That property can secure a first mortgage for the business’s needs, with the owners signing as security providers. Where the factory already has a bank loan, a second mortgage can sit behind it.
Discuss your next order or expansion with a secured lending specialist.
An illustrative manufacturer
Illustrative only. A metal fabrication company wins a contract to supply components to a national infrastructure project. Materials must be ordered months in advance and the head contractor pays sixty days after delivery. The company’s bank overdraft cannot stretch that far. A first mortgage over the company’s factory, held in a related trust, funds the materials and the first three months of extra labour, with interest capitalised. As payments arrive, the loan is reduced, and it is cleared when the contract’s final instalment is paid.
Thinking about equipment and tax
When equipment is part of the plan, tax rules can affect the after-tax cost. The ATO publishes the current small business depreciation rules, which change from time to time. Combine that advice with the funding plan so the equipment purchase is timed and structured sensibly.
Common mistakes
- accepting a large order without modelling the cash gap
- using tax money to buy materials
- underestimating the time from order to payment
- relying on a single customer for most of the business’s revenue
Exit strategies
Common exits include the payment of specific orders, the release of retentions, a refinance into a bank facility once the larger revenue base is established, and the sale of surplus property or equipment. Set the term to the real payment timeline with a buffer.
Questions manufacturers often ask
Can the loan be repaid in stages as customers pay? Many loans allow partial repayments, reducing the balance and interest as payments arrive. Check the terms.
Can stock or equipment be the security? The loans on this site are secured by real property. Equipment and stock can be funded, but the security is property.
Do I need audited accounts? Usually not. The assessment focuses on property and the exit.
Supply chain pressure
Many manufacturers have had to hold more raw materials and components than before to protect against supply delays. That safety stock ties up cash permanently. A secured facility can fund it while the business adjusts pricing and terms to reflect the higher inventory, rather than squeezing wages and tax payments to carry it.
Diversifying customers
Manufacturers that depend on one or two large customers carry concentration risk: if that customer delays payment or changes supplier, cash flow suffers immediately. Lenders notice this too. Where possible, use the breathing room a secured loan provides to broaden the customer base, so the next large order is a choice rather than a dependency.
Energy and input costs
Energy, freight and raw material prices can move quickly, and fixed-price contracts leave manufacturers exposed. When sizing a loan for a large order, include a contingency for input cost rises over the production period. It is far easier to repay an unused buffer than to arrange a second loan halfway through a contract when costs have jumped. Ask suppliers about price-lock options for the contract period, and consider including rise-and-fall clauses in future customer contracts.
Build the order book without breaking the bank
Growth in manufacturing should not depend on how much cash is in the account the day an order arrives. Tell us about the order or expansion, the timeline to payment, the property you can offer and the exit, and a specialist will tell you how to fund it. There is no credit check when you first enquire, your details stay with one team, and a simple cash flow forecast helps us set the right amount and term. Fund your next order.
Frequently asked questions
Can a manufacturer use its factory as security?
Yes. Industrial property is generally well regarded as security, particularly in established estates with good access.
Can a secured loan fund a large order?
Yes. Materials, labour and overheads for a large order can be funded, with the loan repaid when the customer pays.
What about equipment purchases?
A secured loan can fund deposits or the full cost of equipment, particularly where equipment finance is slow or limited.
How quickly can a manufacturer access funds?
On straightforward deals, in as little as 24 hours once documents are signed. Deals involving several properties may take a few business days.
Prefer to start now? Enquire here
About 60 seconds. No credit check when you first enquire, and a secured lending specialist calls you back.