.avif)
Learn how U.S. businesses can fund custom equipment deposits and milestones, manage interim costs, and protect cash flow before delivery.
Ordering custom machinery creates a financing problem that does not exist with equipment sitting on a dealer’s lot.
The manufacturer may require a deposit when the purchase order is signed, additional payments as engineering and fabrication advance, another large payment before shipment, and a final balance after installation. The buyer can therefore have substantial cash tied up months before the equipment produces revenue.
Progress-payment financing is designed for this gap, but it requires more underwriting and transaction control than ordinary equipment financing.
Quick Answer: Progress-payment financing can potentially fund approved deposits and manufacturing milestones for custom-built equipment before final delivery. The financing company will usually review the buyer, manufacturer, specifications, build schedule, milestone evidence, interim financing costs and final acceptance requirements. Arrange the structure before signing a large non-refundable purchase order.
Progress-payment financing releases funds in stages as a custom equipment project reaches agreed milestones.
A conventional equipment transaction is comparatively simple. The equipment already exists, the buyer is approved, the machine is delivered and accepted, and the financing company pays the vendor.
Custom equipment reverses that sequence.
The manufacturer may need money while the equipment is still being engineered or fabricated. The financing company is therefore advancing funds before it has a completed, delivered asset as collateral.
For example, a builder could require:
The percentages are negotiated between the buyer and manufacturer. There is no universal progress-payment schedule.
This structure is particularly relevant for CNC machinery, automation systems, processing lines, industrial refrigeration, compressors, packaging systems and other equipment that is engineered for a specific facility.
For a detailed equipment-specific example, Mehmi's guide to CNC lathe progress-payment financing shows how deposits, engineering milestones, factory testing and final acceptance can fit together.
Businesses should discuss the full payment schedule while reviewing their broader commercial equipment financing options, not after the first deposit becomes due.
The financing company is taking two risks instead of one.
The first is normal borrower credit risk: can the business repay the obligation?
The second is project-completion risk: will the manufacturer actually finish, deliver and commission the equipment after receiving money?
At an early milestone, the financed asset may consist partly of engineering drawings, ordered components and work in progress inside somebody else's factory.
That changes the credit analysis.
An established manufacturer building a recognizable machine platform with documented components is generally easier to evaluate than a newly formed integrator requesting a 60% non-refundable deposit for highly specialized equipment.
Customization matters as well. A machine may be extremely valuable to the company ordering it but worth substantially less to another buyer.
A robotic welding cell illustrates this issue. The robot itself may have an identifiable secondary market, while customer-specific fixtures, programming and integration have much less standalone recovery value. Mehmi's Michigan robotic welding cell financing guide explains why separating standard equipment from custom integration helps credit understand the transaction.
The same principle applies to custom industrial compressor projects, where the financing request may combine compressors, dryers, receiver tanks, controls, electrical equipment, installation and commissioning.
Credit normally needs to understand four separate risks: the business, equipment, vendor and contract.
The financing company may review:
Projected revenue can strengthen the business case, particularly when the equipment supports an awarded customer contract, but projections do not automatically replace evidence of historical repayment capacity.
A useful example is a company adding conveyors after winning new business. Mehmi's contract-backed conveyor system financing guide explains how the customer award, required capacity and expected cash flow should be connected in the credit presentation.
Expect questions about:
A vague proposal such as "automated production system — $1,200,000" is much weaker than an itemized equipment schedule.
Pre-delivery funding makes vendor quality unusually important.
Review may include the manufacturer's legal identity, operating history, physical location, references, manufacturing experience, financial stability, warranty obligations and ability to complete the project.
Payment instructions may also be independently verified before funds are wired.
The financing company needs to see how the commercial risk is allocated.
Important provisions can include:
For high-value projects, qualified legal counsel should review these provisions. The financing approval does not replace legal review of the equipment purchase contract.
Potentially, but it should be disclosed before the deposit is paid.
A business should not assume that it can pay a $200,000 deposit today and automatically have a financing company reimburse it later.
Credit may want to know:
If the buyer contributes the deposit itself, keep the signed purchase order, manufacturer receipt, bank evidence and wire confirmation.
This issue appears frequently in custom refrigeration projects. Mehmi's cold-storage progress-payment financing guide shows why an early six-figure deposit should be structured before manufacturing begins.
Good milestones describe completed work.
Weak milestone:
"25% due 90 days after purchase order."
Stronger milestone:
"25% due after the specified control system, motors and major mechanical assemblies are installed and documented."
The second milestone allows somebody to verify what value has actually been created.
Verification can include:
The larger the advance and the more specialized the equipment, the more evidence a financing company may require.
A meaningful final holdback can also protect the buyer. Paying virtually the entire purchase price before installation leaves less leverage if the equipment arrives incomplete or does not meet the agreed performance standard.
A factory acceptance test, commonly called an FAT, checks the equipment against agreed specifications before it leaves the manufacturer's facility.
For a production machine, the test could cover operating speed, accuracy, capacity, controls, safety systems and production of an acceptable sample part.
For automation, testing may cover sensors, conveyors, robots, safety guarding, PLC logic and integration.
The contract should use measurable criteria rather than language such as "operates to customer's satisfaction."
A successful factory test can support a pre-shipment financing milestone. It should not necessarily replace final acceptance after the equipment is installed at the buyer's facility.
Warehouse automation transactions can become particularly complex because fabrication, controls and installation may involve different phases and suppliers. Mehmi's warehouse automation financing example provides a useful illustration of how the complete equipment package can be presented to credit.
This must be confirmed in the financing documents.
Possible structures may include:
Do not assume that the regular payment automatically waits until the equipment starts generating revenue.
If the project runs three months late, interim financing costs may continue during those additional months.
That is why businesses should model the downside case, not only the manufacturer's target delivery date.
Companies evaluating a more conventional equipment purchase can compare the underlying cash-flow logic with Mehmi's equipment financing and leasing guide for Oshkosh businesses, which emphasizes protecting operating liquidity instead of focusing only on the purchase price.
Assume an established U.S. manufacturer orders a $900,000 custom production system.
The manufacturer requires staged payments over an eight-month build.
For illustration:
The buyer contributes $90,000 toward the first milestone.
The financing company therefore advances a total of $810,000.
Assume, purely for illustration:
The interim estimate assumes advances occur throughout the eight-month build and the buyer pays interest only on amounts already advanced.
Under those assumptions, financing-related payments and fees total approximately $1,055,153, excluding the buyer's $90,000 contribution.
Including that contribution, total project cash out would be approximately $1,145,153 over the financing period.
This example excludes sales or use taxes, legal expenses, inspections, insurance, change orders, late-delivery costs and other transaction expenses. Actual progress-payment pricing may also use a different interim rate or fee structure from the permanent financing.
These numbers are illustrative only and are not a Mehmi Financial Group financing offer.
The important lesson is that the equipment does not simply cost $900,000. The buyer must budget for the cost of carrying advances while the asset is under construction.
Certain directly related project costs may potentially be included, depending on the lender, equipment and approved structure.
Examples can include:
These costs should be itemized.
A financing company will generally view durable equipment differently from consulting, general building renovations or other expenses with little recoverable asset value.
Projects involving several suppliers require even more organization. Mehmi's multiple-vendor loading dock financing example shows how a master equipment schedule can reconcile separate supplier invoices, deposits and delivery dates.
Do not ask vendors to bury unrelated construction costs inside an equipment invoice.
A delay does not automatically pause the financing obligation.
Potential consequences include:
The purchase contract should explain notice requirements, revised deadlines, cure periods and remedies.
The financing company should also be told about material changes. A nine-month project turning into a fourteen-month project may no longer match the original approval.
The business should model enough liquidity to absorb a delay without missing payroll or existing debt payments.
This is one of the most important risks in progress-payment financing.
Before money moves, the parties should understand who owns paid-for components and work in progress.
Questions for legal counsel can include:
U.S. secured equipment transactions commonly involve state-law rules based on UCC Article 9. The Uniform Law Commission explains that Article 9 governs secured transactions involving personal property and that states maintain systems for filing financing statements that disclose security interests. Exact priority and enforcement rules depend on applicable state law and the transaction documents.
That makes title to work in progress a legal issue, not simply a financing issue.
The structure is generally most practical when an established business has a clear need for custom equipment but wants to avoid tying up a large amount of operating cash during a long manufacturing cycle.
The file becomes stronger when:
Progress financing can be relevant across several equipment categories. In addition to CNC machinery and compressors, Mehmi's local U.S. guides illustrate similar issues around custom warehouse and conveyor projects and other integrated systems.
Borrowing should not be used to hide a weak project.
A different approach may be better when:
Alternatives can include paying a manageable deposit from cash or an existing line of credit and financing the equipment at delivery, negotiating better manufacturer payment terms, postponing the order, buying more standardized equipment or reducing the project scope.
The objective is not to finance every dollar. It is to keep the company adequately liquid while taking a repayment obligation it can reasonably carry.
Do not compare progress-payment structures only by the permanent monthly payment.
Review:
Depending on the structure, paying early may not simply mean paying the remaining principal balance. Leases and equipment finance agreements can use different payoff calculations.
Ask for the mechanics in writing.
Potentially. Pre-delivery payments need to be specifically approved and tied to the financing structure. The lender may require vendor verification, milestone documentation, inspections or other evidence before releasing each advance.
Sometimes, but never assume it will be. Eligibility for reimbursement depends on the lender, timing, source of the original payment, purchase documentation and approved structure. Submit the transaction before paying a large deposit whenever possible.
Not necessarily. Some transactions use one approved facility with several advances. Other providers may use separate schedules or another structure. The payout method should be agreed before the purchase order becomes binding.
Potentially. Each supplier should provide complete documentation, and the financing package should reconcile all vendors to one project budget. Different delivery dates or pre-delivery deposits can complicate funding.
Generally, no. The IRS states that depreciation begins when property is placed in service, meaning it is ready and available for its specific business use. A machine delivered but not installed and operational may therefore not yet be considered placed in service. Consult your tax professional for your specific transaction.
It can be more difficult because the financing company is already taking additional vendor and completion risk before delivery. A newer business may need more equity, stronger guarantees, additional collateral or another structure. Requirements vary by provider.
Custom equipment should be financed around the build schedule, not treated like a completed machine after the contract is already signed.
Prepare the full equipment specification, manufacturer information, total installed project cost, proposed milestones, expected completion date and business financials before sending a major non-refundable deposit.
Mehmi Financial Group acts as a financing intermediary rather than the direct lender, so the financing company ultimately determines approval, pricing, security requirements, milestone conditions and availability. Progress-payment structures can also vary by U.S. state and provider.
To discuss a custom-built equipment project, the amount required, your U.S. state, proposed use of funds and delivery timeline, call 833-863-4644 or contact Mehmi Financial Group.
.svg){kind=small}