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Manufacturing funding: work in progress is the asset nobody will lend against
Raw material is collateral. A finished good is collateral. The half-built thing on the floor, which is where most of your cash is, is neither.
Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.
Somewhere on your floor is a part that is no longer steel and not yet a product. You have paid for the material, paid the machinists, absorbed the setup and overhead, and you cannot invoice it. In accounting it is work in progress. In financing it is close to invisible, and it is usually where the biggest slice of a manufacturer's working capital sits.
The three-stage cash trap
The trap is that longer, more complex, higher-margin work pushes more money into the middle stage, which is the stage nobody finances. A shop that moves from simple parts to complete assemblies improves its margins and worsens its liquidity at once.
Long lead times compound it
Material lead times, tooling lead times, and customer schedules that shift after you have already bought. Order a special alloy on a long lead time, take delivery, hold it until the customer releases the build: the cash left months before the invoice will.
Two habits help more than any product. Match supplier terms to customer terms wherever you have negotiating room, and get progress or milestone billing into contracts for long-cycle work. A contract that allows billing at material receipt, at first article approval and at shipment converts one long cash hole into three shorter ones. Ask for it — many customers will agree, and none will offer.
Tooling is a distinct problem
Customer-specific tooling and fixtures cost real money and often belong to the customer once paid for. Carrying tooling cost until the first production run means financing your customer, unsecured, against a programme that may never run. Bill tooling separately, get a deposit, and get ownership stated in writing.
Purchase order financing, and where it stops
PO financing exists for one narrow situation: a confirmed order from a creditworthy customer, larger than you can fund. The funder pays your suppliers, or issues a letter of credit, so the goods can be produced; the resulting invoice repays the facility, often via a factor that takes over at shipment. It is for a step-change order you would otherwise decline.
It is not general working capital, and it is not cheap. It is transaction-priced, documentation-heavy, and it needs a strong end customer, a wide gross margin and manageable production risk. Funders are far more comfortable with something close to buy-and-resell than with a long custom build carrying technical risk. The companion guide covers it in full.
Capital equipment: a decade of life, and a five-year note
A machining centre, a press or a fabrication cell can produce for a very long time. The finance available is usually shorter than that life, which is a manageable and even favourable mismatch: you pay it off and then run for years on equipment that owes nothing.
The decisions that matter:
Customer concentration is the credit
Many small manufacturers have one or two customers who are most of the revenue. It is the first thing an underwriter looks at and the hardest thing to fix quickly, and it affects how much of your ledger is eligible, whether a factor will take you, what concentration limits apply, and whether a bank will extend a line at all. If a facility is coming in the next year, even modest diversification changes the terms you are offered.
What to have ready
- Aged receivables and aged payables
- Inventory split into raw, work in progress and finished goods, at cost
- An open order book with delivery dates
- Customer concentration by percentage of revenue
- Equipment schedule with age, condition and existing liens
- Financial statements, ideally reviewed, with a gross margin that separates material from labour and overhead
- Supplier terms and any credit limits imposed on you
What to ask, and what to refuse
Ask an asset-based lender how it treats work in progress and custom finished goods, and get the advance rates in writing before paying for a field examination. Ask an equipment lender for the end-of-term buyout in dollars. Ask a PO financier what happens on a quality rejection.
Refuse to fund tooling for a customer without a deposit or a written ownership and payment arrangement. Refuse a blanket UCC filing for a single-machine deal, because it will complicate every subsequent facility. And refuse to accept a large step-change order on the assumption that financing will appear; get the funding agreed before you accept the purchase order, not after.
Where this applies
Related questions
What does this guide cover?
Raw material is collateral. A finished good is collateral. The half-built thing on the floor, which is where most of your cash is, is neither.
Which funding products does this apply to?
Working Capital, Term Loan, Business Line of Credit, Equipment Financing, Invoice Financing, Asset-Based Lending. Each has its own page listing the funders in this directory that offer it and what each one publishes about its terms.
Is this specific to manufacturing?
It is written around how a manufacturing business actually generates and collects cash, which is what makes its funding problem different. The mechanics transfer; the arithmetic may not.
Who writes this?
The Find Me Funders research desk. Some drafting is AI-assisted, and every page that is says so at the top, including whether a person has checked its claims yet.
How do I know a figure here is right?
Where a page carries the green notice, its claims were checked against the sources listed at the end and a reviewer is named. Where it carries the amber one, nobody has verified it yet and you should confirm anything you plan to act on.
Are the examples real deals?
No. Every worked example is labelled illustrative and exists to show the arithmetic. What any particular lender charges is on that lender's page, where it publishes it.
Why do you never say what a typical rate is?
Because we cannot source it. A market average assembled from lenders who do not publish prices is a guess with a decimal point on it. Where a lender publishes a figure, we show that figure and say where it came from.
Is this financial or legal advice?
No. It is general information about how these products work. Outcomes depend on your contract and your state, and a lawyer or accountant licensed where you are is the person to ask about your situation.
Can I reuse this content?
Quote a paragraph with a link back. Do not republish whole articles.