The Easiest Way to Finance a Manufacturing Facility

Secured vs Unsecured: Which Loan Structure Works for Manufacturing Property

A secured business loan uses the manufacturing facility itself as collateral, which typically delivers lower interest rates and higher loan amounts than unsecured options. Most lenders will finance 60% to 70% of the property value for industrial purchases, meaning you'll need a deposit of 30% to 40% plus settlement costs.

Consider a fabrication business looking at a 1,200-square-metre facility in an industrial precinct. The property is valued at $1.8 million. A secured loan at 65% LVR provides $1.17 million, requiring the business to contribute $630,000 as deposit plus around $80,000 for legal fees, stamp duty, and other settlement costs. The security reduces the lender's risk, which translates to a variable interest rate that sits 1% to 2% below what an unsecured facility would cost.

Unsecured business finance removes the property as collateral but caps out at much lower amounts, usually $500,000 or less depending on your business revenue and credit profile. It's rarely viable for purchasing industrial property outright, but it can work as a deposit loan or for fit-out costs after settlement. The trade-off is speed and simplicity against cost and capacity.

How Lenders Assess Manufacturing Businesses for Commercial Lending

Lenders look at your business financial statements, cash flow, and debt service coverage ratio to determine how much you can borrow. They want to see consistent revenue, manageable existing debt, and enough profit to cover the proposed loan repayments with a buffer.

A sheet metal manufacturer generating $2.4 million in annual revenue with a net profit of $320,000 applies for a $1.2 million loan to purchase their facility. The annual loan repayment at current rates would be around $96,000. The lender calculates a debt service coverage ratio of 3.3, meaning the business earns more than three times what's needed to service the debt. That's a strong position. If the ratio drops below 1.2, most lenders start declining or requiring additional security.

Your business credit score also factors in, but it's less decisive than your financials. A score above 600 generally keeps you in the running for commercial loans from major banks, while scores below that may push you toward second-tier lenders with slightly higher rates but more flexible assessment criteria.

Fixed vs Variable Interest Rates for Long-Term Property Loans

A fixed interest rate locks in your repayment for one to five years, which protects you from rate rises but removes flexibility if you want to pay down the loan faster. A variable interest rate moves with the market, which means repayments can increase or decrease, but you gain access to redraw and the ability to make extra repayments without penalty.

Most manufacturing businesses split the loan. You might fix 50% to 60% of the loan amount for three years to stabilise your cash flow forecast, then leave the rest variable to allow for lump sum repayments when production cycles bring in larger payments. That structure balances certainty with flexibility, which matters when your revenue fluctuates with contracts.

If you fix the entire loan and need to break it early because you're refinancing or selling, break costs can run into tens of thousands of dollars depending on how much rates have moved. Variable portions don't carry that risk.

Loan Amount and Loan Structure: How Much You Can Borrow

The loan amount depends on your serviceability, the property value, and the lender's maximum LVR for industrial property. Most lenders will go to 65% or 70% LVR for established manufacturing facilities in metro or regional centres with strong demand. Properties in remote areas or with limited alternative uses may cap at 50% to 60% LVR.

Loan structure refers to whether the loan is principal and interest or interest-only, and whether it includes progressive drawdown or a single settlement advance. Principal and interest repayments are standard for owner-occupied manufacturing facilities, while interest-only can be useful if you're planning to sell within a few years or want to preserve cash flow during a business expansion phase.

Progressive drawdown applies more to construction or major renovations, where funds are released in stages as work is completed. For a straightforward facility purchase, you'll settle with a single drawdown on the day of transfer.

Working Capital and Cash Flow: Don't Drain Your Reserves

Buying a manufacturing facility ties up a significant amount of capital in the deposit and settlement costs. You need to preserve enough working capital to cover wages, materials, and operating expenses while the business continues to run.

A food production business with $450,000 in cash reserves considers a facility purchase requiring a $400,000 deposit. Spending that much leaves just $50,000 for working capital, which won't cover a full production cycle if a large customer delays payment. Instead, the business structures the purchase with a smaller deposit by taking a slightly higher LVR loan or bringing in asset finance to fund equipment upgrades separately, spreading the capital requirement across multiple facilities rather than concentrating it all in the property deposit.

Lenders assess your working capital position as part of the application, and they'll decline deals where the purchase leaves you undercapitalised. You'll often need to demonstrate three to six months of operating expenses in reserve after settlement, depending on your industry and contract terms.

Buying a Business with Property Included

When you're buying a business and the manufacturing facility is part of the transaction, lenders split the valuation between the real property and the business goodwill. The property portion is treated as commercial lending secured against the land and buildings. The goodwill portion, which includes customer lists, intellectual property, and trading history, is treated as business acquisition finance and typically requires a higher deposit or unsecured funding.

This structure means you might need 30% deposit for the property component and 40% to 50% for the goodwill component. Some lenders will blend the two, but most separate them because the property holds its value independently while the business value depends on continued operation.

Interest-Only Periods and Flexible Repayment Options

An interest-only period reduces your repayments in the early years of the loan, which can help during a business expansion or if you're carrying fit-out costs post-settlement. Most lenders offer interest-only terms for one to five years on commercial property loans, after which the loan reverts to principal and interest.

The monthly repayment difference is significant. A $1.2 million loan on interest-only at a variable rate might cost $6,000 per month, compared to $9,000 per month on principal and interest. That $3,000 difference can fund additional staff, materials, or equipment during a growth phase.

Flexible repayment options like redraw or offset accounts are less common on commercial loans than residential, but some lenders offer them on variable portions. Redraw lets you access extra repayments you've made, which functions like a reserve fund tied to the loan. Offset accounts, where your business transaction account reduces the interest charged, are rarer but worth negotiating if your business maintains a high cash balance.

Why Queensland Manufacturers Should Move Quickly on the Right Property

Industrial property in Queensland's regional centres has seen consistent demand, particularly in areas with transport links and proximity to major highways. Facilities that suit light to medium manufacturing don't stay listed long, and waiting for perfect conditions often means missing the property altogether.

Fast business loans with express approval timelines are possible if your financials are current and your deposit is ready. A full assessment and formal approval can take two to four weeks with the right preparation, which includes up-to-date business financial statements, a cashflow forecast, and a clear business plan showing how the facility supports revenue growth or cost reduction.

If you're comparing business loans across multiple lenders, focus on the total cost over the loan term rather than just the interest rate. A loan with a slightly higher rate but no ongoing fees and flexible repayment options can cost less than a lower-rate loan with expensive exit clauses and rigid terms.

Frequently Asked Questions