2 min read
The capital intensity of manufacturing
Modern manufacturing requires continuous investment in plant and equipment. CNC machining centres, injection moulding tools, laser cutters, robotic assembly cells and industrial ovens represent investment levels that are beyond the routine cash generation of most owner-managed limited companies. A business that cannot invest in equipment risks losing capacity, quality or competitiveness to better-capitalised rivals.
Asset finance allows a company to acquire the equipment it needs today, funded by the revenue that equipment will generate over its working life, rather than waiting years to accumulate sufficient cash reserves.
Hire purchase and finance lease for plant and machinery
Hire purchase is the most common route for manufacturers who want to own the asset at the end of the term. The company pays a deposit — typically 10–20% of the asset cost — and then fixed monthly instalments. The asset is on the company balance sheet and can attract capital allowances, which directors should discuss with their accountant.
Finance leasing is an alternative where the lessor retains title but the company has full operational use. At the end of the primary lease period, the company can extend at a peppercorn rental or sell the asset and retain a portion of proceeds. This can be tax-efficient in some structures and is worth modelling against outright purchase.
Funding bespoke and long-lead equipment
Specialist machinery — custom tooling, one-off fabrications, bespoke automation cells — may require a deposit and staged payments during manufacture, well before the asset is installed and productive. Lenders will generally require sight of a formal purchase contract and supplier credentials before advancing against pre-delivery stages.
Where lead times are long, the company must ensure its finance facility is in place and drawdown-ready before the supplier requires payment milestones. Leaving finance to the last moment is one of the most common causes of project delay.
Refinancing existing plant
A manufacturer with unencumbered machinery on its balance sheet can release capital through sale-and-leaseback. The lender buys the asset and immediately leases it back to the company, injecting cash without disrupting production. The released capital can be redeployed into working capital, further equipment, or other business needs.
The viability of sale-and-leaseback depends on the asset's age, condition and residual value. Equipment that is near the end of its productive life will attract a lower advance.
Frequently asked questions
Can a manufacturer finance second-hand machinery?
Yes, many asset finance providers will lend against used machinery, though the maximum term and advance rate typically reflect the age and condition of the equipment. Independent valuation may be required for high-value or specialist items.
Is there a minimum equipment value for asset finance to be worthwhile?
Administration costs make very small asset finance agreements uneconomical for most lenders. As a broad guide, equipment values below £5,000–£10,000 are often better funded from a revolving credit facility or business loan than through a dedicated hire purchase agreement, though this varies by lender.
Funding for UK limited companies
Credicorp lends to your company, not to you personally — short-term working capital with no personal guarantee. See what your business could access.