Financing custom-built equipment: how to fund the deposit and progress payments before delivery

Most asset lenders only fund equipment once it’s delivered, so a machine that has to be built first usually needs its deposit and progress payments funded another way. Businesses often cover the build stage with cash, a line of credit, a working capital loan or a property-secured loan, then move the finished machine onto equipment finance when it arrives and is installed.

Off-the-shelf equipment is simple: the dealer has it, the lender pays, you collect it. Custom equipment is different. A packaging line, a body built onto a truck chassis, a commercial kitchen fabricated to fit a site, a specialised trailer: these are ordered, built and delivered over weeks or months, and the supplier wants money along the way.

Why does custom equipment create a funding gap?

Because the supplier’s payment schedule and the lender’s settlement rules don’t line up.

A typical custom order might ask for:

• a deposit when you sign, often a third or more of the price;
• a progress payment at a build milestone, such as frame complete;
• the balance on delivery or commissioning.

Meanwhile, most equipment finance is built around a finished asset. The lender’s security is the machine. Until the machine exists, is delivered and is accepted, there’s nothing practical to secure, value or recover. So the deposit and progress payments fall into a gap that the equipment finance won’t cover.

How do businesses fund the build stage?

Option	How it works	Suits
Cash reserves	Pay the deposit and stages from the bank account	Businesses with healthy reserves and a modest deposit
Business line of credit	Draw down as each stage falls due, repay when the asset is financed	Ongoing flexibility; deposits that come in stages
Short-term working capital loan	A lump sum for the deposit, repaid over a short term	One deposit, clear repayment plan
Property-secured business loan	Borrow against residential or commercial property for the build	Large orders, longer builds, several machines
Progress-payment funding	A financier pays the supplier at milestones, then converts to standard finance on delivery	Larger orders with established suppliers

For trading businesses, unsecured and cash-flow options such as a business line of credit typically run from $5k to $500k, sized on turnover and bank statements. Property-secured business loans run from $20k to $5m, which suits bigger builds or owners who want to fund the deposit and keep cash in the business.

Progress-payment funding exists in the market, but it’s usually reserved for substantial orders from suppliers the financier knows. Expect conditions such as a contribution from you, a documented build schedule and sometimes inspections at each stage.

If you’re facing a deposit deadline now, a 60-second enquiry gets a real person looking at the options, with no credit check at that point.

How do you protect the money you pay before delivery?

This is the part most businesses skip, and it matters more than the funding. Money paid towards a machine that doesn’t yet exist is at risk if the supplier runs into trouble.

A few protections worth discussing with your adviser before you sign:

• Clear milestones. Tie each payment to something you can verify: drawings approved, frame complete, factory acceptance test passed.
• Title as you pay. Some contracts pass ownership of components or the part-built asset to you as payments are made. Others keep title with the supplier until the final payment.
• Supplier track record. Check how long they’ve been trading and ask for references from businesses that have bought similar equipment.
• Retention. Holding back part of the price until commissioning gives the supplier a reason to finish properly.

Suppliers often protect themselves too. The PPSR notes that retention of title arrangements, where goods are supplied on credit, are a common type of security interest, and it advises registering before handing over any goods (why register on the PPSR). The same register warns that a party who doesn’t register is likely to be an unsecured creditor if the other side becomes insolvent. It’s a useful reminder that deposits are exposed unless the contract and the paperwork protect them.

What does the lender need on delivery?

Line it up in advance so settlement is quick:

• the final tax invoice, in the borrower’s exact name;
• evidence of delivery and acceptance, sometimes a signed delivery receipt or commissioning certificate;
• serial numbers and specifications;
• proof of the deposit already paid, so the lender knows what’s left to fund;
• insurance noting the financier’s interest.

Get the equipment finance approved when you sign the order, not when the machine arrives. Ask how long the approval lasts. Custom builds often run late, and an expired approval at delivery time is a stressful way to start.

Lenders treat specialised machines more cautiously than mainstream ones, because the second-hand market is smaller. Our guide to specialised equipment and resale value explains why, and how property or strong trading can fill the gap.

What should you ask the supplier before you sign?

A few questions now save a lot of stress later, and lenders like to see the answers too.

• What exactly triggers each payment? A date isn’t a milestone. “Frame welded and photographed” or “factory acceptance test signed off” is.
• Who owns the part-built equipment? Ask whether ownership of components passes as you pay, or only on final payment.
• What happens if the build runs late? Some contracts include delay provisions; many don’t. Know before you rely on a delivery date for a new contract.
• Will you issue tax invoices for each payment? Your lender and your accountant will want them in your business’s exact name.
• What’s included at delivery? Freight, installation, commissioning, training and spare parts can each add cost if they’re not in the quote.
• Have you built this before? References from businesses that bought similar equipment tell you more than a brochure.

Keep the answers in writing. If anything goes wrong mid-build, that paperwork is what you, your adviser and your lender will all reach for first.

When does the tax deduction apply?

Not when you pay the deposit. The ATO’s instant asset write-off update says the deduction is claimed in the income year the asset is “first used, or installed ready for use”. The $20,000 threshold, now permanent for businesses with aggregated turnover under $10 million, applies to the cost of each asset. Assets above it go into the small business pool, as the ATO’s instant asset write-off guidance explains.

So a machine ordered in April with a deposit paid before 30 June, but installed in September, belongs to the next income year. Talk to your accountant before you time an order around tax.

An illustrative example

Illustrative only. A food manufacturer orders a custom $320k filling and packaging line. The supplier wants $110k on signing, $90k when the line passes factory testing, and the balance on commissioning. Lead time is five months.

The owner arranges a property-secured loan against the family’s commercial unit to fund the $200k in deposit and progress payments, and gets equipment finance approved for the finished line at the same time. The contract ties each payment to a milestone, and the owner’s lawyer adds a clause passing title in the completed components as they’re paid for.

The build runs three weeks late, so the owner asks the lender to extend the equipment finance approval. On commissioning, the line goes onto equipment finance, part of the proceeds reduce the property loan, and the business has a working line, a clear security position and a deposit that was protected all the way through. The manufacturing business loan page covers other ways manufacturers fund growth.

Signed the order and the deposit is due? Let’s see what fits

Custom equipment is often the biggest single purchase a business makes, and the funding gap during the build catches plenty of owners off guard. Sorting the deposit and the delivery-day finance together takes the pressure off.

The enquiry takes about 60 seconds and there’s no credit check when you first enquire. We don’t send your details to a pile of lenders, so there’s no flood of calls. A real person reads your order details, works out what fits the build stage and the delivery stage, and calls you. Please fill the form in accurately, including the supplier’s payment schedule if you have it, so we can match the right option first time.

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