Manufacturing Financing: ABL, PO Funding & Equipment
When a manufacturer needs capital, the question is rarely 'which product?' — it's 'how do we stack three products against four collateral types into one facility?'
Manufacturing is where the asset-based playbook really shines, because you usually have more than one collateral type on the balance sheet. There's AR from your commercial customers, inventory at cost (raw materials, work-in-process, and finished goods), equipment you own free-and-clear or partly financed, and sometimes real estate. ABL was built for exactly this picture: a single revolving line that advances against the whole stack — typically 80%–90% on AR, 50%–60% on inventory, plus an equipment and sometimes real estate piece. Facility sizes generally start at $3MM and run up to $25MM and beyond, priced at Prime + 1–4%, with funding in 6–8 weeks once full diligence runs. Under the ABL minimum threshold, the default is invoice factoring on the AR alone, typically with an inventory sublimit added on a case-by-case basis. There are also a handful of specialty inventory lenders who will do standalone deals — usually two or three lenders we know of will advance roughly 40%–50% of inventory at cost, on top of a 13-week cash flow forecast and a math story (not a sales story) for how the inventory turns. That product is harder to source and pricier than ABL, but it can be the right answer when AR is too lumpy to anchor a deal. When a large purchase order lands — especially one with international suppliers, long lead times, or tariff exposure — PO funding becomes the right tool. PO funding pays your vendors for 70%–100% of confirmed order cost at roughly 1.5%–3% per 30 days. It pairs cleanly with factoring on the back end: PO funds production, factoring funds the wait after delivery, and you don't burn equity capital on materials. Equipment financing rounds out the stack for capacity expansion. Terms run 24–84 months, rates from single digits to low double digits depending on collateral and credit. Sale-leaseback is the move when you have free-and-clear equipment and need to pull cash without taking on covenanted bank debt.
The cash-flow challenges manufacturing actually face
- •Multiple collateral types (AR, inventory, equipment, real estate) — usually under-leveraged on a single bank line
- •Net-30 to net-90 payment terms from large customers create predictable but painful AR aging
- •Inventory builds ahead of large orders tie up significant working capital — especially when raw materials are imported or tariff-affected
- •Large purchase orders from new customers create production cash needs the existing bank line can't size to
- •Bank lines often cap at a multiple of revenue rather than scaling with the actual collateral on the balance sheet
- •Equipment purchases for capacity expansion compete with working capital needs for the same dollars
- •Tax returns showing modest net income (after depreciation and aggressive cost accounting) don't reflect the real cash story banks want
What usually fits — ranked
Asset-Based Lending
The right structure once a manufacturer has $3MM+ facility need and multiple collateral types. Combines AR (80%–90% advance), inventory (50%–60% advance), and sometimes equipment into one revolving line at Prime + 1–4%.
Invoice Financing
Below ABL minimums or when financials don't yet support a full asset-based facility. 85%–90% advance against AR, scales with sales, funded 24–48 hours after onboarding.
PO Funding
When a large PO requires production cash before the customer pays. Pays suppliers 70%–100% of confirmed order cost. Pairs naturally with factoring or ABL on the back end.
Equipment Leasing & Financing
For capacity expansion, fleet, or new capital equipment. 60–84 month terms typical, rates from single digits to low double digits. Sale-leaseback extracts equity from equipment already owned.
Inventory Financing
Standalone inventory financing when AR is too lumpy to anchor a deal. Small lender universe (two or three lenders do real standalone inventory), typically advances 40%–50% on inventory at cost.
Real Estate Lending
If you own the building free-and-clear or with significant equity, a cash-out refinance is often the cheapest capital you'll access — Prime + 2–7% — and frees working capital for the operating business.
How this plays out in practice
A $12MM specialty manufacturer carries roughly $1.8MM in AR at any given time (net-45 customer terms), $2.5MM of inventory at cost (a mix of raw materials and finished goods), and roughly $1MM of owned equipment. The current bank has them on a $1.5MM line, capped, with a personal guarantee and a tight DSCR covenant. A new customer just placed a $2.4MM purchase order requiring 90 days of production cash and imported components. The structure is a $6MM asset-based facility — 85% advance on eligible AR, 55% advance on finished goods inventory, plus a $750K equipment add-on. Pricing comes in at Prime + 2.5%. The bank is paid out at closing and walks away from the covenant. To bridge the new customer's $2.4MM PO, a separate PO facility funds the overseas supplier for 80% of cost at 2% per 30 days; once the goods ship and the invoice generates, the AR line picks up the receivable and the PO facility self-liquidates. The outcome: total revolving availability roughly triples versus the old bank line. The $2.4MM order ships on time without the manufacturer touching equity capital. Eighteen months in, with revenue at $18MM, the facility resizes to $10MM at slightly tighter pricing and the equipment add-on is rolled into a separate term structure for tax efficiency.
Public case study: Total Working Capital — $3.1MM
This medical device manufacturer, headquartered in Central Florida, was referred to Serve Funding by a banker after narrowly missing the bank's debt service coverage ratio requirements.
See full case study →How Michael thinks about manufacturing
“Factoring, invoice factoring, and asset-based lending are cousins. They both create a revolving line that's collateralized by your AR. Both can sometimes include an add-on piece for inventory, at a lower advance rate, and as a secondary to the AR. The difference is factoring is not an actual debt product — it doesn't show up on your balance sheet as debt. ABL is very similar in most respects. It is a true piece of debt on the balance sheet.”
— Michael Kodinsky, Founder of Serve Funding · Mike's framing of the ABL/factoring relationship from the Chuck Wahr (Lowe & Fletcher) call — the cleanest comparison of the two products.
“You could potentially take a purchase order, finance that at cost for the materials, and then pair that with accounts receivable financing, because you're presumably going to invoice this business entity. You could do a PO plus AR, kind of a combination deal.”
— Michael Kodinsky, Founder of Serve Funding · Mike on the PO + AR stack — the canonical multi-product approach for manufacturers landing a large new customer order.
“I sort of put underwriting, I define it by being in one of two buckets. Either an asset-backed or asset-based approach, whether that be receivables or inventory or real estate or equipment, or a revenue-based approach where they're just underwriting based on historical cash flows.”
— Michael Kodinsky, Founder of Serve Funding · Mike's two-bucket mental model. For most manufacturers, you live in the first bucket — which is good news, because it's cheaper.
What doesn't usually fit (and why)
Half of being useful is being honest about what doesn't work. These are products we generally don't recommend for manufacturing — and the reason.
SBA can work for acquisition or real estate purchase, but the 4–12 week underwriting cycle and credit-box requirements rarely match the speed a growing manufacturer needs for working capital. We refer SBA out when it fits and use faster non-bank tools for the rest.
Revenue-based working capital is fine as a small subordinate layer, but it ignores the collateral sitting on a manufacturer's balance sheet. Leading with an asset-based product almost always lowers the all-in cost.
