Can I use a working capital facility to fund raw materials and increased WIP? (Manufacturing)

Quick answer: Yes — many working capital facilities can be used to purchase raw materials and fund rising work‑in‑progress (WIP). Suitability depends on the product (inventory finance, asset‑based lending, purchase order finance, etc.), how lenders value WIP, your stock control and reporting, and the size and security of the facility. To see what’s realistic for your business, get a Free Eligibility Check: Get Quote Now.

Table of contents

• What is a working capital facility?
• Can it be used for raw materials & increased WIP?
• Types of finance best suited to raw materials & WIP
• What lenders and brokers look for
• How to structure a facility to fund raw materials & WIP
• Costs, terms, risks & compliance considerations
• Alternatives and when to use them
• Anonymised example
• FAQs
• Next steps / CTA

What is a working capital facility?

Working capital facilities provide short‑term liquidity to cover day‑to‑day operating needs — usually revolving lines rather than single‑repayment term loans. Common examples include overdrafts, invoice finance (factoring or discounting), inventory or stock finance, purchase order finance, and asset‑based lending (ABL). Unlike a term loan aimed at capex, working capital is designed to bridge timing mismatches (e.g., paying suppliers while waiting for invoices to be paid) and to support seasonal or ramped production.

Can it be used for raw materials & increased WIP?

Direct answer: most manufacturers can use working capital facilities to fund raw materials and rising WIP — but there are important caveats.

• Permitted use: many inventory finance, purchase order finance and ABL products explicitly allow advances to buy raw materials and to fund production costs tied to confirmed orders.
• Valuation: lenders treat raw materials, WIP and finished goods differently. Raw materials are generally easier to value and liquidate than partially completed WIP; finished goods often attract the highest advance rates.
• Advance rates: expect higher advances against receivables (often 60–85%) and lower, conservative advances against raw materials/WIP (typically 20–60% depending on sector, perishability and traceability).
• Conditions: WIP may be accepted only where it can be regularly inspected or where strong stock control systems (barcodes, batch tracking, independent stocktakes) allow a lender to verify amounts and values.
• Exclusions: speculative stock, materials bought without a customer order, or goods at high obsolescence risk may be excluded or attract heavy haircuts.

In short: yes, but you’ll usually need a product and lender that explicitly allows stock and WIP in the borrowing base and you should expect conservative valuation and reporting conditions. If you’re unsure which product fits your production cycle, request a Free Eligibility Check: Free Eligibility Check.

Types of finance best suited to raw materials & WIP

Inventory / stock finance

Designed to release cash tied in raw materials and finished stock. Lenders take a charge over stock and advance against an agreed valuation. Best when you hold predictable stock and can provide frequent stock reports.

Asset‑based lending (ABL)

ABL uses a borrowing base that can include receivables, stock, machinery and sometimes WIP. Suited to larger manufacturers with complex working capital needs. Advance rates vary by asset class; WIP typically attracts lower rates and closer monitoring.

Invoice finance (factoring / discounting)

Not a direct WIP funder — it unlocks cash once invoices are raised. Combine it with inventory finance to cover raw materials that turn into billed work quickly.

Purchase order finance / supplier finance

Funds specific supplier invoices tied to a confirmed customer order. Ideal when a single large order requires upfront raw material purchases and you have signed customer contracts.

Overdrafts & revolving credit facilities

Flexible and fast but normally limited in size relative to the scale of raw material purchases. May suit short seasonal spikes.

Quick comparison (scan):

• Inventory finance — best for ongoing stock builds; moderate advance; regular reporting.
• ABL — best for larger, complex businesses; borrowing base covers multiple assets; stricter covenants.
• Invoice finance — best when you generate invoices quickly; doesn’t fund pre‑invoice WIP directly.
• PO finance — best for order‑specific raw material funding; often supplier‑paid directly.
• Overdraft/RCF — fastest, least structured; limited capacity.

What lenders and brokers will ask and how they value WIP

Key underwriting criteria:

• Production cycle length and lead times — longer cycles usually mean more conservative lending.
• Gross margins and product mix — higher margin products are more attractive security.
• Order book and customer credit quality — confirmed orders and reputable customers improve terms.
• Stock control and traceability — barcode systems, batch records and reconciliation reduce lender risk.
• Historical accounts and trading performance — many lenders want 12–24 months of management accounts.

How WIP is valued in the borrowing base:

• Lenders usually apply haircuts to net realisable value. Indicative advance ranges: receivables 60–85%, finished stock 30–70%, raw materials/WIP 20–60%.
• WIP often valued as a percentage of cost or expected finished‑goods value, less a contingency for completion risk and obsolescence.
• Ongoing reporting: periodic stocktakes, access for audit or inspection and inventory reconciliation are common covenants.

Typical documentation requested: management accounts, purchase orders, stock reports, customer contracts, VAT returns, bank statements and details of stock systems. Broker support often speeds this process by tailoring the submission to lenders who specialise in manufacturing sectors.

How to structure the facility so it funds raw materials & WIP

Practical tips to maximise the chance of funding:

• Make sure the facility agreement explicitly allows stock/WIP in the borrowing base.
• Consider a blended approach — e.g., invoice finance + inventory finance — to optimise advance rates across assets.
• Use purchase order finance for single, large contracts to have suppliers paid directly by the funder.
• Implement robust stock controls (regular independent stocktakes, barcode/batch tracking) before applying — lenders prize verifiability.
• Negotiate reporting cadence that fits your cycle (monthly vs weekly reconciliations) to avoid operational strain.

Application steps (typical): gather documents → match with specialists → receive indicative terms → lender due diligence (stocktakes, legal) → facility documentation → drawdown. For a tailored match with lenders experienced in manufacturing finance, start with a Free Eligibility Check: Get Started.

Costs, terms, risks & compliance considerations

What you’ll pay and what to watch for:

• Cost elements: interest (variable or fixed margin), facility fees, arrangement/legal fees, monitoring or stocktake fees and admin charges.
• Terms to watch: borrowing base thresholds, advance rate tiers, default interest, reporting covenants, security charges and personal guarantees.
• Risks: over‑valuing WIP, stock obsolescence, covenant breaches, and seasonal spikes that exhaust the facility. If stock becomes slow‑moving, lenders may reduce advances or require additional equity.

Compliance note: UK Business Loans introduces businesses to lenders and brokers and does not lend money or provide regulated financial advice. Submitting an enquiry is free and non‑binding; lenders set the final terms.

Alternatives & when to use them

• Invoice finance — use if you bill quickly and want to unlock debtor cash rather than fund WIP directly.
• Asset finance — suitable when machinery or equipment can be used as security instead of stock.
• Short‑term term loans — for one‑off raw material purchases if you don’t want ongoing monitoring.
• Supplier negotiation / trade credit — sometimes improved supplier terms or staged deliveries reduce the funding need.

If you’re unsure which is best for your situation, we can match you with lenders and brokers who specialise in manufacturing working capital: Free Eligibility Check.

Anonymised case study

A mid‑sized components manufacturer won a 6‑month contract requiring a 40% increase in raw materials. The business combined a purchase order finance facility for the specific contract with short‑term inventory finance for general stock. Result: suppliers were paid directly, production ran to schedule, and the company avoided overdraft pressure. Cash conversion improved and the combined facility was repaid from customer invoices on completion. Time to funding: offers in 10 days; full drawdown in 4 weeks after stock control checks.

Frequently asked questions

Will lenders accept WIP as part of a borrowing base?

Some do — especially asset‑based lenders — but WIP is usually accepted at conservative rates and needs strong reporting and verification.

Will submitting an enquiry affect my credit score?

No. Completing an enquiry with UK Business Loans is a soft, non‑binding step and will not affect your credit score. Lenders may run checks later if you apply with them directly.

How long from enquiry to drawdown?

Initial contact is often within hours; simple facilities can be completed in 1–2 weeks, more complex ABL or facilities involving stocktakes and legal charges typically take 4–6 weeks or longer.

Can start‑ups fund WIP?

Possible but harder. Lenders generally prefer a trading history and verifiable orders; purchase order finance is often the best route for newly winning a first large contract.

Do you charge for matching?

No — UK Business Loans’ introducer service is free for businesses. Lender and broker fees will be set by the provider you choose.

Next steps — get a tailored match

If raw materials and rising WIP are tying up cash, don’t let production slow or orders stall. Submit a short, free enquiry and we’ll match you with lenders and brokers experienced in manufacturing working capital. Typical facilities we arrange start from around £10,000 upwards.

Get Quote Now — free eligibility check and tailored matches within hours.

UK Business Loans acts as an introducer and matchmaker — we do not lend money or provide regulated financial advice. Completing an enquiry is free and non‑binding. We will share your details with selected lenders and brokers who can help; they will set any final terms and carry out their own checks.

Related reading: For more on tailored funding for manufacturers see our sector guide to manufacturing business loans.

1. Can I use a working capital facility to fund raw materials and increased WIP?
Yes — many inventory finance, purchase order finance and asset‑based lending facilities can fund raw materials and WIP, though lenders apply conservative advance rates and strict reporting/collateral controls.

2. What types of finance are best for manufacturers needing raw material and WIP funding?
Inventory/stock finance, asset‑based lending (ABL), purchase order finance and blended solutions with invoice finance are the most common options for manufacturing working capital.

3. How much of my stock or WIP will lenders typically advance?
Advance rates vary by asset class—receivables ~60–85%, finished goods ~30–70% and raw materials/WIP generally ~20–60% depending on sector, perishability and traceability.

4. What documentation and stock controls do lenders require to include WIP in a borrowing base?
Lenders typically ask for management accounts, purchase orders, stock reports, bank statements, strong stock control systems (barcodes/batch tracking) and rights to inspect or commission independent stocktakes.

5. How long does it take from enquiry to drawdown for manufacturing working capital?
Initial lender responses are often within hours, with simple facilities completing in 1–2 weeks and more complex ABL or stock‑monitored facilities taking around 4–6 weeks or longer.

6. Will submitting an enquiry via UK Business Loans affect my credit score?
No — completing a free enquiry with UK Business Loans is non‑binding and won’t affect your credit score; lenders may run credit checks only if you proceed with an application.

7. Can start‑ups secure funding for raw materials and WIP?
Start‑ups can sometimes access funding—purchase order finance or targeted short‑term facilities are often the best routes—though lenders usually prefer trading history and verifiable orders.

8. What are the typical costs and fees for inventory finance or ABL facilities?
Expect interest margins, arrangement and legal fees, monitoring/stocktake fees and potential facility/usage charges, with total cost depending on lender, sector risk and facility complexity.

9. How should I structure finance to cover both raw materials and invoice cashflow?
A blended structure—combining inventory or PO finance for pre‑production costs with invoice finance for post‑invoice cashflow—often optimises advance rates and working capital efficiency.

10. What should I do next to find a lender who understands manufacturing working capital?
Complete a free eligibility check with UK Business Loans to be matched quickly with specialist brokers and lenders experienced in manufacturing working capital (the enquiry is not a formal application).