Capex funding: plant, fit-outs and capacity upgrades

Why fund capex separately from working capital?

The most common capex mistake in established SMEs isn’t overspending — it’s paying for a long-life asset from a short-life facility. A new CNC line, a cool-room upgrade or an ERP implementation gets paid out of the overdraft because it’s quick. Six months later the overdraft is permanently drawn, the trading cycle has nowhere to breathe, and the next review looks worse than the business really is.

The principle is simple: match the funding term to the asset’s useful life. A machine that will earn for eight years should be repaid over a period that relates to those eight years, not over the next 60 days of trading. That keeps the working capital facility available for what it’s designed for.

What kinds of capex are we talking about?

Type of spend	Resale value	Typical funding approach
Identifiable plant, machinery, vehicles	Moderate to good	Equipment finance, or property-backed term debt
Installation, commissioning, freight	Little or none	Property-backed or general business term loan
Fit-outs and leasehold improvements	Little or none	Property-backed term loan
Software, systems, ERP	Little or none	Term loan from cash flow or property security
Site expansion, second premises	Varies	Combination; see expansion capital

The more of the project that sits in the “little or none” rows, the more the funding depends on the business’s cash flow or on property security rather than on the asset itself.

Equipment finance or a property-backed term loan?

Equipment finance secures the lender over the asset — commonly registered on the PPSR — and suits standalone, identifiable items. It’s efficient for vehicles and standard machinery.

It becomes awkward when:

• a large share of the project is installation, fit-out or software
• the asset is specialised and has a thin resale market
• several suppliers and progress payments are involved
• you want one facility for the whole project rather than a patchwork of contracts

That’s where a property-backed term facility can be simpler. Security over residential or commercial property supports funding from $20,000 to $5,000,000 for the entire project, drawn as needed, with one set of documents. See property-backed business loans.

If you’d like to know which approach suits a specific project, send us the project budget and timeline.

How do lenders assess a capex request?

A lender will want to see that the business can carry the new repayments today and that the investment makes commercial sense. Expect questions on:

1. Serviceability. Can current earnings meet existing and proposed repayments? The debt service cover calculator gives you a quick read before you ask.
2. Payback. What does the investment add — capacity, margin, labour savings — and when?
3. Ramp-up. How long before the new capacity is fully used? Lenders discount plans that assume instant uptake.
4. Execution. Has the business delivered similar projects on budget before?
5. Knock-on working capital. More capacity usually means more stock and more debtors. Has that been funded?

A short funding paper answering those questions makes a noticeable difference to the outcome. Our guide to writing a funding proposal sets out a structure.

Illustrative example: a capacity upgrade

Illustrative only; no real business. A food manufacturer with about $18 million turnover plans a new packaging line. The quoted equipment is a little over half of the total project; the rest is installation, electrical work, a production-area fit-out and integration software.

The equipment supplier’s finance partner will fund the machine but not the remainder. The company instead takes a property-backed term facility over its factory for the whole project, with drawdowns aligned to supplier milestones, and separately lifts its revolving working capital limit to carry the extra stock the line will need once it’s running. Ramp-up is modelled over nine months, not one.

Tax and timing

Tax treatment affects the after-tax cost of capex, so involve your adviser before committing. The ATO has confirmed that from 1 July 2026 the $20,000 instant asset write-off is permanent for businesses with aggregated turnover of less than $10 million, applied per asset. Many established SMEs sit above that turnover, where standard depreciation rules apply. Either way, the finance structure should be chosen on commercial grounds; tax is a factor, not the driver.

A capex checklist before you sign a purchase order

• Full project budget, including installation, freight, fit-out and contingency
• Supplier quotes and payment milestones
• Ramp-up assumptions and the earnings case
• Extra working capital the new capacity will need
• Existing facility terms — some restrict new borrowing or security
• Tax advice on depreciation

Leasing, buying or borrowing?

For some assets, leasing avoids a large upfront outlay and may suit equipment that dates quickly. For others, owning outright — funded by term debt — is cheaper over the asset’s life and builds balance-sheet value. The comparison depends on the asset’s useful life, residual value, maintenance obligations and tax treatment. Ask your adviser to model the options on an after-tax cash basis before you commit.

Fund the project without starving the trading cycle

If you have a capex project that deserves proper term funding, bring us the budget, the timeline and the security position. We’ll outline structures that keep your working capital limits clear.

There’s no credit check when you first enquire. Your project details aren’t circulated around a lender list; a specialist assesses the file and approaches the right funder. Complete the form as accurately as you can — the total project cost and any property available matter most. Talk to us about capex funding.