Financing Equipment With Long Lead Times and Progress Payments

A long-lead machine creates a financing timing problem

A standard equipment purchase may be invoiced, delivered and funded within a short period. A custom machine can take six months or longer to design, build, test and ship.

The vendor may want money at order, another payment when fabrication reaches a milestone and a final balance before shipment. If the lender expects to fund only after delivery, the buyer can face a large cash gap.

Start with the vendor payment schedule

Before asking how much financing is available, map when money is actually due.

• Initial deposit
• Engineering or design milestone
• Fabrication milestone
• Factory acceptance test
• Shipment
• Installation
• Final acceptance

The exact stages differ by vendor, but the lender needs to understand the sequence.

Not every lender funds before delivery

Some equipment lenders are comfortable funding only after the asset exists, has been delivered and can be clearly identified. Others may consider progress funding under defined conditions.

That is why the financing source needs to be selected with the transaction timeline in mind.

Vendor strength can matter

A large established OEM with a clear contract and track record is easier to understand than a newly formed fabricator asking for a large unsecured deposit months before the machine exists.

The lender may review the vendor, payment terms, refund provisions and what evidence will show that each milestone has been reached.

Custom equipment creates completion risk

With a standard machine, the lender can usually identify a finished asset. With a custom project, some of the financing may be advanced while the equipment is still being built.

The lender therefore needs confidence that the project will be completed and delivered.

That can make contract language, vendor experience and milestone evidence more important than on a simple stock-equipment purchase.

Deposits paid before the lender is involved

A deposit paid before financing is arranged raises separate questions about refunds, reimbursement and whether the lender will count it as the buyer’s contribution. Those are covered in our guide to financing equipment before delivery.

Currency can add another layer

If the machine is being built outside Canada, the contract may be denominated in U.S. dollars, euros or another currency.

Exchange-rate movement between order and final payment can change the Canadian-dollar project cost. Some lenders offer foreign-currency structures, while others fund in Canadian dollars.

Make sure the budget shows the contract currency and the assumptions used.

Delivery delays need to be discussed before they happen

A delayed machine can affect both financing and operations. If the vendor misses a milestone, tell the financing provider rather than allowing the file to drift past expected dates.

The lender may need updated invoices, delivery schedules or approval extensions.

Progress payments should be documented

Each payment should tie back to a contract milestone or invoice. Avoid sending large amounts based only on an email request from the vendor.

Milestones tied to something observable, such as a completed frame, a factory acceptance test or shipment, are easier for a lender to verify than a percentage-complete estimate.

Good documentation protects the buyer as well as the lender.

Frequently asked questions

Who confirms that a milestone has been reached?

It depends on the lender and the contract. The lender may ask for the milestone invoice, photos, an inspection report or the buyer’s written confirmation before releasing that payment.

Can a lender pay the vendor in stages?

Potentially. Staged funding is lender-specific and usually requires a documented milestone schedule.

What if the machine is custom-built overseas?

The file may require additional vendor, currency, shipping and import documentation.

Can financing be approved before the machine is finished?

Potentially, subject to lender review and conditions. Approval timing and funding timing are not always the same.

Finance the timeline, not just the invoice

For long-lead equipment, the payment schedule is part of the financing structure. Send Raymond Leigh the vendor proposal and milestone schedule before signing if possible.

You can submit the project for review.

What a lender may want before the first advance

Depending on the structure, the lender may want signed purchase contracts, proof of the buyer’s contribution, evidence that the vendor is legitimate, milestone invoices and confirmation that conditions have been satisfied before releasing each advance.

If the vendor contract allows broad changes to scope or price, the lender may require updated approval before funding beyond the original amount.

How to manage a project with several progress-payment suppliers

A production line may involve an OEM, robot integrator, controls supplier and local installation contractor, each with a separate payment schedule.

Create one master schedule showing every expected payment by date. This allows the lender to see the highest cash requirement and the point at which the hard assets actually exist.

What if the machine is delayed after money has been advanced?

Tell the lender immediately. The financing provider may need updated delivery evidence or an extension to the approval. Delays also affect insurance, installation bookings and the date the equipment begins producing revenue.

Do not let a material delay remain hidden until final funding is requested.

Use contract protections where possible

For significant custom equipment, the buyer should understand cancellation rights, milestone acceptance, warranty, title and what happens to deposits if the vendor fails to deliver. Those are commercial and legal issues, but they directly affect financing risk.