Sequencing capital for a manufacturing capex: debt, incentives and equity

For a manufacturer, the funding plan is part of the investment case. Which sources are used, in what proportion and in what order changes both the cost of capital and the cash the project must generate to service it.

Start with the incentive position

State and central incentives influence eligible investment, location and timing, and some benefits must be planned before commitments are made. Establishing eligibility first avoids forfeiting benefits that later cannot be recovered.

Size debt to the project

Term debt should be sized to projected cash flows and available security, with working capital tested separately against the operating cycle.

Use equity for the residual and the risk

Promoter contribution and any external equity cover the balance and the uncertain early stretch of the project, where debt service would otherwise be strained.

Order matters

• Confirm scheme eligibility and conditions before orders are placed.
• Finalise the project report, CMA data and means of finance together.
• Align the lender sanction and disbursement schedule with the capex schedule.
• Preserve the records required for incentive claims from the first invoice.

These decisions interact, which is why they are best planned together. Government incentives → and Debt and structured finance →