How do you finance the purchase of a machine shop?

The machines: collateral, with an appraisal attached

Lenders are more comfortable with a machine shop than with most small businesses its size because much of the purchase price is metal: CNC mills and lathes, inspection equipment, saws, and often the building. The SBA lending data for machine shops shows how SBA lenders have treated the industry. But lenders do not take the seller's depreciation schedule or the purchase agreement's allocation as the value of that equipment. They order an appraisal.

The appraiser usually reports two numbers that matter: fair market value, what the machine would sell for between a willing buyer and seller given time, and orderly liquidation value, what it would bring in a managed sale within a set period. Lenders lend against the lower one. The gap is widest on specialized or older machines with a thin resale market, and narrowest on common, recent CNC equipment from well-known builders. See equipment appraisals: OLV and FMV.

Collateral helps, but it rarely carries the whole loan. A shop that sells for more than its machines are worth, as most profitable shops do, has goodwill, and the goodwill is financed on cash flow. The appraisal also matters under SBA's valuation rule: where the amount financed, less appraised real estate and equipment, exceeds $250,000, SBA requires an independent business valuation. Appraised equipment is subtracted in that test, so on a smaller purchase that is mostly machinery the valuation may not be needed at all, and on a larger one the appraisal supports the valuer's work. More on this in SBA's business valuation requirement.

Who the shop makes parts for

A job shop's revenue is only as durable as its customers, and machine shops are often concentrated: a few manufacturers can account for most of the work. Lenders want revenue by customer for several years, and they look at the end markets behind those customers, because each behaves differently.

The stickiness of a machine shop's customers comes from approval. A customer that has qualified the shop to make a part, run first-article inspections and loaded it into its supplier system will not move the work lightly. But a change of ownership can prompt the customer to review that approval, and some supply agreements require consent to an assignment or change of control. Lenders ask which customers have been told and which agreements need consent; see change-of-control consents and customer concentration.

Certifications and registrations that follow the owner

Many shops hold quality registrations such as ISO 9001, AS9100 for aerospace or ISO 13485 for medical work, and some are registered to handle defense articles under export controls. These are assets in the sense that they open doors to customers, and they are liabilities in the sense that losing one can close those doors quickly.

• Quality registrations are issued to the company's quality system by a registrar. A change of ownership usually has to be reported, and the registrar may audit; the system itself, and the quality manager who runs it, has to survive the sale.
• Export-control registrations for defense work carry notification duties on a change of ownership, and stricter ones where a foreign person is involved. The buyer's counsel should confirm them early.
• Customer-specific approvals and special-process certifications sit with the customer's own supplier-quality team and may require a new review.

Lenders do not need to be experts in these regimes, but they will ask which ones the shop holds, what share of revenue depends on each, and what the plan is for keeping them. A shop whose aerospace revenue rests on a registration that lapses at closing is a very different credit from one whose registration continues without a gap.

The owner who quotes, programs and fixes the machines

In many small shops the owner is the best estimator and the best programmer, and sometimes the only person who can set up the most difficult jobs. Quoting is where a job shop makes or loses money, and the knowledge of what a part really costs to run lives in someone's head. Lenders ask who quotes today, who programs, who manages quality, and which of them are staying.

Skilled machinists and programmers are hard to hire, so a lender reads the staff roster closely: tenure, pay against the local market, and whether key people have agreed to stay. A buyer who has spent time in the shop before closing, and who has retention arrangements for the lead programmer and quality manager, answers most of the concern. Under SBA rules the seller may not stay as an owner, officer or employee after a complete change of ownership but may consult for up to 12 months, or up to 24 months under SOP 50 10 8.1 from 1 October 2026. That longer window can be worth planning around where the seller's quoting knowledge has to be passed on. For buyers from outside manufacturing, see do lenders require industry experience.

Earnings after the machines are kept current

A shop that has not bought a machine in years can show strong earnings while its equipment falls behind. Lenders therefore look at the machine list, the ages of the key machines and the spending history, and they deduct the capital spending needed to keep the shop competitive before measuring debt service coverage. A simple illustration: adjusted earnings of 1,000, less 200 a year to replace and rebuild machines, leaves 800 for the loan payments. See maintenance vs growth capex.

The other lines lenders check are the ones that reveal how the shop is run: gross margin by customer or part family, scrap and rework, tooling spend, and whether overtime is covering a staffing gap. Inventory in a machine shop is mostly raw bar and plate stock plus work in progress; lenders give it limited value, typically advancing up to 85% of net orderly liquidation value, or roughly half of cost, on raw stock and finished parts; work in progress is usually excluded. Owner add-backs are credited when documented and genuinely ending at closing, and the lender deducts a market salary for whoever will run the shop.

An appraisal that shows old machines is not only a collateral problem. It tells the lender that earnings will have to pay for new ones.

How the financing fits together

A machine shop can use more parts of the lending market than most small businesses, and the right combination depends on how much of the price is real estate, how much is equipment and how much is goodwill.

For an owner-operator buying one shop, a single 7(a) loan is often the simplest route. Where the building is a large part of the price, pairing a 7(a) loan for the business with a 504 loan for the real estate and long-life machines can lower the payments, and since July 2026 the 504 and 7(a) limits are counted separately. The comparison is in SBA 7(a) vs 504 and financing an acquisition that includes the real estate. Larger shops with a sponsor or a platform plan often combine a senior loan with an asset-based line that includes machinery; see machinery and equipment in an ABL and lines of credit for manufacturers.

SBA prohibits an earnout to the seller, so the price is fixed at closing and cannot rise or fall with how the customers hold up. Where that risk worries the buyer, it is handled in the price, or by the seller carrying part of it as a fixed note; see seller notes and SBA's full-standby rule. Because machine shops use coolants, oils and solvents, lenders commonly require an environmental review of the site, especially when the building is part of the purchase.

The machine shop file

Lenders start with the standard acquisition documents in what lenders need to finance an acquisition: two to three years of business tax returns, the P&L and balance sheet, the latest full year of figures (never an older year), a year-to-date P&L, the debt schedule, the signed letter of intent, and the personal tax returns and personal financial statement of each owner of 20% or more. A machine shop file also needs:

• A machine list with make, model, year, controls and condition, and any lien on each machine.
• An equipment appraisal, or the lender will order one.
• Revenue and margin by customer for each year, with the end market for each.
• Quality and export registrations held, with the latest audit results.
• Receivables aging and an inventory report split into raw material, work in progress and finished parts.
• A staff roster with roles, tenure and who has agreed to stay, and the capital spending history.

Transparent builds the financing model, lender presentation, blind teaser and underwriting memo from these in a day once they are in, with the appraisal and the capital spending plan built into the coverage math. What the package contains is on the package.