Financing a Flour Mill: Seven Structures and What Each Costs

The seven structures

Structure	Share of project	Term	Typical cost
Equity / cash	30–50%	—	Opportunity cost
Commercial bank term loan	40–60%	5–8 yrs	8–16% p.a.
Equipment leasing	70–90% of equipment	3–5 yrs	10–18% p.a.
Supplier credit	20–40% of equipment	12–24 mo	4–9% p.a.
Export credit agency	60–85%	7–12 yrs	5–9% p.a.
Development finance institution	40–70%	7–12 yrs	6–11% p.a.
Blended / mezzanine	Varies	Varies	12–20% p.a.

Commercial bank term loan

The default. Terms vary enormously by country and credit quality.

What lenders want:

• Feasibility study with primary market research
• 30% minimum equity
• Evidence of offtake — purchase agreements, letters of intent
• Secured land and building
• Debt service coverage ratio above 1.3×
• Experienced management

What kills applications:

• National statistics used as market evidence
• 100% utilisation assumed in year one
• No wheat supply contract
• Borrowers with no milling experience

Supplier credit

Underused. On orders above roughly USD 300,000, suppliers will often extend 20–40% of the equipment value over 12–24 months, typically secured by a letter of credit or bank guarantee.

How to ask: at the quotation stage, not after the contract. Ask for two prices — one with supplier credit and one without — so you can see the implied interest rate.

The value is not the rate. It is that supplier credit lets you reduce the equity requirement at financial close, which is often the binding constraint.

Export credit agencies

If you buy from a country with an ECA (China Export & Credit Insurance Corporation, Euler Hermes, SACE, KEXIM, JBIC), the ECA can insure or guarantee 60–85% of the contract value over 7–12 years.

Requirements:

• Minimum contract value (often USD 1–5 million)
• Buyer country risk acceptable to the ECA
• 15–20% cash payment
• Sovereign or bank guarantee in some markets

For 200 t/d plants and above, ECA financing is often the cheapest long-term money available. Below USD 1 million it is usually not worth the administrative cost.

Development finance institutions

DFIs (IFC, AfDB, ADB, EBRD, DEG, FMO) lend to agribusiness for food security and employment reasons. They accept longer tenors and thinner security than commercial banks, but demand stronger development impact documentation and environmental/social compliance.

Worth pursuing for 100 t/d+ projects in DFI member countries.

Working capital: separate and critical

Project finance covers the plant. Working capital covers wheat inventory, receivables and spares — and it is the line item most often omitted.

Working capital need	Basis
Wheat inventory	30–45 days of consumption
Receivables	30–60 days of sales
Spares	2–3% of equipment value
Cash buffer	2 months of operating cost

For a 60 t/d plant, that totals roughly USD 400,000–600,000 — more than the equity in the equipment.

Arrange a separate revolving credit facility secured on inventory and receivables. Do not try to fund working capital from project equity; you will run out during the harvest purchase season, which is exactly when wheat is cheapest.

The covenant package

Expect lenders to impose:

Covenant	Typical level
Debt service coverage ratio	> 1.25×
Net debt / EBITDA	< 3.5×
Current ratio	> 1.2
Capital expenditure limit	Approval above a threshold
Dividend restriction	Blocked while DSCR < 1.5×
Insurance	Plant, business interruption, assigned to lender

Breaching a covenant is not a default, but it hands the lender leverage. Model your covenants in the downside scenario, not just the base case.

Sequencing

1. Equity committed — 30–50%, demonstrated not promised
2. Feasibility study — bankable, with primary research
3. Offtake evidence — letters of intent or contracts
4. Equipment quotation — with supplier credit option priced
5. Term sheet — commercial bank or DFI
6. Working capital facility — separate negotiation, start it early
7. Financial close — all documentation signed together

Starting the working capital facility after financial close is a common and avoidable mistake.