SBA loans for machine shops

What the numbers say about machine shops

Machine shops took 410 SBA 7(a) loans from FY2024 through June 2026, worth $325,452,400 from 154 lenders. That is a lot of money per loan for a small-business trade. The median of $299,000 is roughly double the national median, the middle half runs from $100,000 to $999,750, and a tenth of loans exceed $2,411,610. The shop floor is expensive: five-axis mills, lathes, inspection equipment and the building to hold them.

The rate is the unusual part. Machine shops price below the national median, with a middle half from 8.5% to 10.75%. Size is a large part of the reason. SBA caps a variable rate at the base rate plus 3% above $350,000, against plus 6% from $50,001 to $250,000, and a quarter of this industry's loans are $1 million or more, far above that line. Hard equipment behind the loan also gives a lender something to recover. No franchises appear in the record, and start-ups are 8.5% of loans.

Why so many shops change hands

The 88 acquisition loans, 21.5% of the industry's approvals, are the clearest signal on this page. A common pattern is a shop founded by a machinist a generation ago and sold as the founder retires, to a manager, a competitor, or a buyer from outside the trade who brings management skill. SBA is well suited to that sale because it can finance goodwill over 10 years with a modest equity injection. See buying a business from a retiring owner and financing a machine shop acquisition.

A machine shop purchase is also where several SBA rules bite at once. The buyer needs an equity injection of at least 10% of total project costs; a seller note counts toward half of it only on full standby for the life of the loan. SBA prohibits an earnout to the seller. The seller cannot stay on as owner, officer or employee, which matters when the founder is also the best programmer in the building; the seller may consult for up to 12 months, or up to 24 months under SOP 50 10 8.1 from 1 October 2026. Plan that handover in the letter of intent. See SBA seller transition.

Where the amount financed, less appraised real estate and equipment, exceeds $250,000, SBA requires an independent business valuation, and the loan for the purchase cannot exceed it. From 1 October 2026 every change of ownership needs financial due diligence and must show 1.25x debt service coverage on historical results, and a quality of earnings report is required on acquisitions of $3 million or more excluding real estate. At a median acquisition loan of $1,273,000, most shop purchases sit well under that line; only the largest reach it. See quality of earnings for acquisition loans.

How a machine shop loan is built

A shop purchase or expansion usually has several parts, and SBA treats each differently. Lenders blend the maturities, and the sequence matters for payments and coverage.

Equipment is the collateral that sets machine shops apart. A lender will order an appraisal and credit the machines at orderly liquidation value, well below replacement cost, and older manual machines count for little. That value still does real work: it narrows the unsecured goodwill in a purchase and it supports equipment loans outside SBA. See equipment appraisals: OLV and FMV and equipment financing vs SBA 7(a).

The 68 SBA 504 loans, at a median of $778,000, finance buildings and long-life machinery. 504 is typically 50% from a bank, 40% from the CDC and 10% from the borrower, and the CDC's share goes up to $5.5 million for manufacturers, above the $5 million for other borrowers. Since July 2026 504 and 7(a) limits are counted separately, so a shop can use both. See SBA 7(a) vs 504.

What lenders ask a machine shop

• Customer concentration. Many shops do most of their work for a few manufacturers or prime contractors. Lenders want revenue by customer for three years and the terms of any supply agreement. See customer concentration in an acquisition.
• Backlog and quoting. Open purchase orders and the win rate on quotes show whether next year's revenue is visible.
• Certifications and registrations. Quality certifications and any defense-related registration can be what earns a shop its best customers. In a purchase, lenders ask whether they carry over to the new owner.
• People. Programmers, setup machinists and quality staff are hard to replace. Lenders look at tenure and at whether the owner is doing work nobody else can.
• Capital spending. Machines wear and technology moves. Lenders add depreciation back to cash flow, then ask what the shop must spend to stay competitive. See maintenance capex.

SBA's floor is 1.15x debt service coverage, 1.0x globally with the owners' personal debts. A shop earning 1,500 a year before debt service, against proposed payments of 1,100, covers about 1.36 times; add a replacement spindle the lender treats as recurring spending of 150 a year and coverage falls to about 1.23 times, under the 1.25x a change of ownership must show from 1 October 2026.

Preparing a machine shop's file

SBA's standard list applies: business tax returns for 2–3 years, a P&L and balance sheet with a year-to-date P&L through last month-end, a debt schedule with copies of notes being refinanced, and personal tax returns and a personal financial statement for each owner of 20% or more, all of whom guarantee the loan. A purchase adds the target's latest full year of figures, never an older year, and the letter of intent.

For a machine shop, add an equipment list with make, model, year and condition (and any recent appraisal), revenue by customer, open purchase orders, certifications, an organization chart with tenure, and a capital spending history. Shops that carry receivables for large manufacturers often need a line alongside the term loan; asset-based lenders typically advance 80% to 90% of eligible receivables. See lines of credit for manufacturers.

Transparent builds the full lender package — financing model, lender presentation, blind teaser and underwriting memo — in a day, and takes it to the part of its book that fits: 278 lenders write SBA 7(a) and 504, 244 write equipment, and 235 write asset-based lines. On SBA loans the lender pays Transparent, not the borrower. See the package and, for related codes, fabricated metal products and structural metal.