Financing a manufacturing business. The core, the swing and the plant, built as one raise.
In short
How a UK lower-mid-market manufacturer structures a debt raise. A manufacturer at £3m to £15m is asset-rich and both capex- and working-capital-heavy, so the raise is usually a blend: a term loan for the permanent core, an asset-based or invoice-finance line for the working-capital swing that stock and debtors create, and asset finance for plant and machinery. Manufacturers are lender-selective because not every lender reads an order book, a concentrated customer list, thin margins and a stock position the same way, and the sizing follows a core-and-swing forecast rather than a single instrument.
Written by Gregory Elgunov, Managing Director · Last reviewed 27 September 2026
A manufacturer at £3m to £15m is rarely funded by one instrument. The balance sheet is asset-rich and the trading is capex-heavy and working-capital-heavy, so the raise is usually a blend: a term loan for the permanent core, a working-capital line (asset-based lending or invoice finance) for the swing that stock and debtors create, and asset finance for the plant and machinery. Each part matches a different shape of need, and the structuring judgment is where the lines between them sit. Manufacturers are also lender-selective, because not every lender reads an order book, a stock position and a concentrated customer list the same way, which is why a competitive process matters more here, not less. This guide sets out how the blend is built, why the sector rewards a careful process, what lenders scrutinise, and how the same logic plays out in food and drink, the UK’s largest manufacturing sector, at September 2026 rates.
Written for the borrower’s side of the table. This is general guidance, not advice on your specific facility. It deepens the shorter answers in our working guide.
A term loan for the core, a working-capital line for the swing, asset finance for the plant.
A manufacturing business is usually financed as a blend of three instruments, each matched to a different part of the balance sheet, rather than by a single loan. The term loan funds the permanent core: an acquisition, the refinancing of existing borrowings, and the fixed floor of working capital the trading cycle never dips below. A working-capital line, asset-based lending or invoice finance, funds the swing above that floor, the stock build and the debtor book that swell when the order book is full and unwind when it clears. And asset finance funds the plant and machinery, advanced against the equipment and repaid over the years it earns, with the machine itself as security. Three needs, three shapes of debt, and the reason a manufacturer rarely wants them all in one instrument is that each is cheapest in its own form.
These parts do not have to come from one lender, and often should not. A term loan and a committed revolving line may sit with a clearing or challenger bank; the asset-based line may sit with a specialist ABL house that reads a debtor book more generously; the plant may be funded by an asset-finance provider priced off the equipment. What matters is that the pieces sit behind one coherent security position, with the charges and any intercreditor agreed up front, so that no lender is surprised by another’s claim on the same assets. Assembling that stack, and holding it to a single set of terms, is most of the work in a manufacturing raise.
Where the lines between the three sit is a forecasting judgment worth real money. The working method is a monthly cash forecast across at least one full trading cycle: the level the funding need never falls below is core, and is termed out; the oscillation above it sizes the working-capital line; and the capital programme sits on asset finance so it never crowds the core loan. Our guide to how much your business can borrow runs the capacity three ways, on the earnings, the cash flow and the assets, which is the same three-part read a manufacturer’s raise is built on.
The balance sheet is heavy and the earnings move, and not every lender reads that well.
Manufacturers are lender-selective because the balance sheet is heavy and the earnings move, and not every lender reads that combination well. A manufacturer ties up capital in plant, raw materials, work in progress and finished goods, and its earnings swing with input costs, the order book and how fully the plant is running. A lender that sizes purely off a multiple of EBITDA, around 2.5 to 3.5 times for bank senior cash-flow terms, will underlend an asset-rich manufacturer through a soft patch, because the multiple contracts with the earnings even when the collateral behind them holds. A lender that reads the collateral and the order book can lend more, and lend through the cycle. The two lenses give different answers on the same company, as our guide to cash-flow versus asset-based lending sets out.
Appetite also varies by what you make. Some lenders carry scars from a sub-sector, automotive supply, construction products, anything heavily cyclical or exposed to a single end-market, and will price it cautiously or pass. Others specialise in exactly that risk and understand it better than a generalist. So the field of lenders that will fund a given manufacturer well is narrower than for an asset-light services business, and a borrower who approaches one bank and takes its answer as the market’s answer usually leaves headroom, or margin, on the table.
The practical consequence is that a competitive process matters more for a manufacturer, not less. The categories that lend into the sector, clearing and challenger-specialist banks, asset-based lenders, asset-finance houses and private-credit funds, read the same numbers differently and price them differently, and the only way to find which reads yours most favourably is to put the same information pack to several at once.
The order book, the customer concentration, the margin and the stock.
Lenders financing a manufacturer scrutinise four things above the headline profit: the order book, the customer concentration, the margin and the stock. The order book is forward visibility, and lenders separate contracted, committed revenue from a pipeline of hopeful quotes; a long book of firm orders from creditworthy customers underwrites the plan, while a book that is mostly framework agreements with no minimum volumes underwrites much less. Cancellation and change terms matter as much as the headline value.
Customer concentration is read hardest of all, because it drives both the cash-flow risk and the collateral. A manufacturer whose largest customer is a big share of revenue carries a real risk that a single lost account breaks the plan, and in an asset-based line a concentration cap limits how much of the debtor book counts toward availability, so a concentrated book supports less than its face value. Margin is the third: gross-margin resilience to input-cost swings, and whether contracts let you pass rising costs through or leave you absorbing them, decides how much a downside dents the earnings, and therefore how much covenant headroom the structure needs. Headroom on a manufacturing deal is customarily set at 25 to 30% against the forecast, wider where the margin is thin or the inputs are volatile.
Stock is the fourth, and manufacturers carry the most complicated stock a lender sees. Raw materials and clean finished goods are decent collateral; work in progress is poor, because a half-built product has little value to anyone but you, and lenders advance little or nothing against it. Obsolescence and shelf life cut eligibility further. The point for the borrower is that the gross stock line on the balance sheet and the stock a lender will fund are different numbers, and presenting the split clearly, by category and age, is part of getting a fair read. How these tests translate into the terms you sign is in our guide to the all-in cost of raising debt.
With a facility that flexes against the debtor book and stock, not a fixed loan.
A manufacturer funds its working-capital swing with a facility that flexes against the debtor book and stock, not with a fixed term loan. Manufacturing working capital moves: raw materials are bought and converted, finished goods sit until they ship, and invoices are raised and then wait to be paid, so the funding need swells through a production and stock build and unwinds as the goods sell through. An asset-based or invoice-finance line tracks that movement. It advances a percentage of the eligible receivables, typically 80 to 90% of the qualifying book, releasing cash against invoices raised but not yet collected, with a lower tranche advanced against stock on top. Both lines are floating-rate, priced at a margin over SONIA, which sat at 3.73% on 22 September 2026 against a Bank Rate of 3.75%, held at the Bank of England’s September meeting. Bank of England, Bank Rate.
The availability moves with the assets, which is the point. A manufacturer carrying £6m of eligible receivables might see about £5.1m advanced at an 85% rate, with a further tranche against finished-goods stock, and that number rises as the order book fills and the book grows. These figures are illustrative, not a quote. Fund the same swing with a fixed term loan and you carry idle cash at full margin for the months the need is low, which is the cost of the wrong shape. Our guide to asset-based lending sets out the borrowing base and the eligibility rules in full.
Two manufacturing features bite on eligibility. Work in progress rarely counts, so a business with long production runs funds a smaller share of its stock than one that turns raw materials into shippable goods quickly. And customer concentration caps the receivables line, so a manufacturer selling mostly to two or three large accounts draws less against the book than the headline advance rate implies. Sizing the swing line honestly means starting from the eligible base, not the gross balance sheet.
On asset finance secured on the equipment, not out of the term loan.
Plant and machinery is financed on asset finance secured on the equipment, not out of the term loan. Asset finance, hire purchase or a lease, advances against the value of the machine and is repaid over its useful life, with the asset itself as the lender’s security. That does two useful things. It matches the cost of the equipment to the years it earns, so a line bought to run for a decade is paid for across that decade rather than out of next year’s cash. And it keeps the term loan free for the core, instead of loading a large one-off capital purchase onto a facility meant to fund the acquisition or the permanent working capital.
The channel behind this is deep and reaches well beyond the high street. On the broadly adjacent asset-finance measure, SME new business reached a record £23.5bn in 2024, holding the 2023 level, up from £16.0bn in the Covid year of 2020, with non-bank lenders supplying 37% of it in both 2023 and 2024. British Business Bank, Small Business Finance Markets 2024/25. That evidences the asset-backed channel broadly, leasing and hire purchase included, rather than manufacturing plant alone, and it confirms that the capacity to fund equipment runs across banks and independents both.
Asset finance and a term loan are complements, not competitors, and the choice between them for a given purchase turns on how long the asset earns and how the cash is best matched. A committed capex facility handles a staged programme, drawn in tranches as the machines land and then repaid on a term profile. Our guide to asset finance versus a term loan sets out which purchase belongs on which instrument.
The same blend, tuned for perishable stock, supermarket terms and thin margins.
A food and drink manufacturer is financed on the same three-part blend, tuned for perishable stock, supermarket payment terms and thin margins. Food and drink is the UK’s largest manufacturing sector, and the structure of a raise in it follows the same logic as any manufacturer, a term loan for the core, a working-capital line for the swing, asset finance for the plant, but three features shift the parameters. Stock is perishable, so short-shelf-life inventory advances at a lower rate in an asset-based line, or is ineligible altogether, and the debtor book carries more of the collateral weight as a result.
The customer base is the second feature. A food and drink manufacturer that supplies the grocers sells into a concentrated set of powerful buyers on long payment terms, which stretches working capital and makes a facility that flexes against the debtor book close to essential. The concentration also caps how much of that book an asset-based lender will fund, so the receivables line is sized carefully around the largest accounts. Thin margins and volatile commodity inputs are the third: a raise here needs wider covenant headroom against input-cost swings, and contracts that let cost rises pass through are read as a genuine credit strength.
Capital spending in the sector runs to automation, food-safety and energy-efficiency plant, which sits naturally on asset finance and keeps the core loan clear. Seasonality, the Christmas and summer peaks, lands on the working-capital line. The result is that a food and drink manufacturer often leans harder on the swing line and the debtor book than a general engineer does, and lighter on stock as collateral, but the three-part shape is the same. Getting the split right, and putting it to the lender categories that understand perishable stock and grocery terms, is where a borrower-side process earns its keep.
We will build the raise around the plant, the swing and the core.
If you are financing a manufacturing business, weighing how much of the raise belongs on a term loan against a working-capital line and asset finance, a first conversation is confidential and costs nothing. We build the monthly forecast that separates the core from the swing, size the plant finance against the capital plan, and put the whole structure to the lender categories that read a manufacturer most favourably, then tell you plainly where each pound is cheapest. See how a mandate runs in how we work, or the full range of what we advise on in our services.
The terms in this guide
Each is defined in full in the library, with the levels and conventions that apply at £3-15m.
- Asset finance
Asset finance funds a specific asset over its working life, secured largely on the kit itself. On a like-for-like APR it costs about the same as a term loan, so the decision turns on ownership, security and cash-flow shape rather than rate.
- Asset-based lending (ABL)
Asset-based lending sizes a facility off the assets rather than off a multiple of earnings. Availability flexes with the collateral, which suits a business whose balance sheet is bigger than its profit suggests.
- Cash conversion
Cash conversion is how much of your EBITDA arrives as cash. It decides how much of the reported figure is real for servicing debt, which is why the affordability lens can cap a facility below whatever the multiple advertises.
- Customer concentration
Customer concentration is the share of revenue depending on a small number of customers. It rarely stops a facility outright; it reduces the leverage a lender will underwrite and tightens what comes with it.
- Sale and leaseback
A sale and leaseback sells the freehold to an investor and leases it straight back on a long term. It releases close to the full value of the property and converts an owned asset into a permanent fixed rent.