Financing

How to Finance a Machine Shop: SBA 7(a), SBA 504, and ROBS

LightsOut CNC Journal · 8 min read · Rules current as of September 2026

CNC machines cost a lot. Most new shops cannot pay cash for them. Three tools come up again and again: the SBA 7(a) loan, the SBA 504 loan, and ROBS, which lets you use retirement savings to fund your own company. This guide explains each one in simple terms, how they compare, and what changed in 2025 and 2026.

Quick answer. A 7(a) loan is the most flexible. It can pay for machines, working capital, and startup costs in one loan, up to $5 million. A 504 loan is built for big fixed assets like machines and buildings, with a fixed rate on part of the loan. ROBS is not a loan. It lets you roll retirement money into your new company, and that money can count toward your down payment. You can use more than one.

1. The SBA 7(a) loan

The 7(a) is the SBA's main business loan. A bank makes the loan, and the SBA guarantees part of it. That guarantee lowers the bank's risk, so it can say yes to deals it might turn down on its own.

Size: up to $5 million per loan.
Uses: equipment, working capital, real estate, buying a business, and paying off some existing debt.
Term (how long you have to repay): up to 10 years in most cases. If the loan pays for equipment or real estate that lasts longer than 10 years, the term can go up to 25 years. The term cannot be longer than the useful life of the machine.
SBA guarantee: up to 85% on loans of $150,000 or less, and up to 75% on larger loans.
Personal guarantee: anyone who owns 20% or more of the business signs a personal guarantee.
Prepayment: loans with terms of 15 years or more have a prepayment fee in the first three years if you pay down 25% or more early.

Why shops like it: one loan can cover the machine, tooling, software, rent deposits, and payroll until revenue starts. For a new shop with no sales yet, that working capital matters as much as the machine.

2. The SBA 504 loan

The 504 is built for long-life fixed assets. It has three parts: a bank loan for about 50% of the project (the bank has the first lien), a CDC loan for up to 40%, and your down payment of at least 10%. A CDC (Certified Development Company) is a nonprofit lender approved by the SBA. Its part of the loan has a fixed rate for the life of the loan.

New business rule: if your company has been operating for two years or less, your down payment goes up to 15%. It goes to 20% if the project is also a special-purpose building (one built for a single use).
Equipment: machines must have at least 10 years of useful life left. Equipment usually gets the 10-year CDC term. Real estate gets 20 or 25 years.
Size: the CDC portion can reach $5.5 million for manufacturing projects, higher than the standard $5 million.
Fees: about 3% of the CDC loan, and they can be rolled into the loan. Manufacturers currently have the SBA's upfront and yearly 504 fees waived.
What it can't pay for: working capital. 504 money is for the project assets only.

A practical point for machine shops: a 504 finances a specific asset. If you are buying more than one machine on different delivery dates, or you still need working capital, you may need a second loan anyway. Ask your lender how they handle staged purchases before you sign.

3. 7(a) vs. 504 at a glance

Best for: 7(a) — machines plus working capital in one loan. 504 — big fixed assets like machines and buildings.
Max size: 7(a) — $5 million. 504 — $5 million CDC portion ($5.5 million for manufacturing).
Rate: 7(a) — set by the bank within SBA caps, often variable. 504 — fixed rate on the CDC portion.
Equipment term: 7(a) — up to 10 years, or longer if the machine's useful life supports it (max 25). 504 — 10-year CDC term.
Working capital: 7(a) — yes. 504 — no.
Down payment for a startup: 7(a) — at least 10% of total project cost. 504 — 15% if in business two years or less.
Lenders involved: 7(a) — one bank. 504 — a bank and a CDC.

4. ROBS: using retirement money

ROBS stands for Rollovers as Business Start-Ups. It lets you move money from an eligible retirement account into your new company without paying early withdrawal taxes or penalties at the time of the rollover. It is not a loan, so there are no monthly payments.

How it works: you form a C corporation (ROBS does not work with an S corporation). The company sets up a new 401(k) plan. You roll your retirement money into that plan. The plan then buys stock in your company, and the company has cash to spend on the business.

What you have to keep doing:

File Form 5500 every year. A ROBS plan does not qualify for the one-person plan filing exception.
Value the company stock every year. The plan owns stock, so it needs a fair value each year. The IRS has flagged weak valuations as a major problem.
Stay a C corporation while the plan owns stock. Switching to an S corporation can break the plan.
Let later employees join the plan on fair terms. Blocking them is a known compliance issue.

The risk. The IRS does not treat ROBS as an abusive tax shelter. But it calls these plans "questionable" and has studied them for years. Its research found that many ROBS businesses in its sample failed within a few years. If the business fails, the retirement money is gone. Use a ROBS provider that handles the plan work, and have a CPA or ERISA attorney review the setup. (ERISA is the federal law that governs retirement plans.)

ROBS and SBA loans can work together. SBA rules allow loans to businesses funded through ROBS. Lenders can count properly set-up ROBS money toward your down payment. But the lender must check that the ROBS plan follows IRS and Department of Labor rules. Expect them to ask for the plan documents, and ask your lender early how they handle ROBS.

5. The 2025–2026 rule changes you need to know

SBA rules changed a lot in the last two years. If you read about SBA loans before mid-2025, some of it is out of date.

10% down is back for startups. Since June 1, 2025 (SOP 50 10 8), 7(a) loans to startups need an equity injection of at least 10% of total project cost. A startup means one year or less of revenue.
Up to $10 million combined. Since July 4, 2026, a 7(a) balance no longer reduces what you can borrow under a 504. A business can have up to $5 million in each, for $10 million total. The SBA says the 7(a) should come first if you plan to use both. Each single 7(a) loan is still capped at $5 million.
Citizenship rule. Since March 1, 2026, all owners must be U.S. citizens or U.S. nationals living in the U.S. This rule is being challenged in court and could change.
MARC for manufacturers. MARC (Manufacturers' Access to Revolving Credit) is a newer SBA line of credit for manufacturers, up to $5 million. It has no SBA minimum equity injection.
Lower fees for manufacturers. For loans approved from October 1, 2026 to September 30, 2027, 7(a) loans of $700,000 or less to manufacturers have no upfront SBA guarantee fee. That limit was $950,000 the year before. Manufacturers also have both SBA 504 fees waived. Fees are set each year, so ask your lender what applies when your loan is approved.
New rulebook October 1, 2026. SOP 50 10 8.1 replaces the current rules. Most rules carry over. The biggest changes are for buying an existing business, not for startups.

6. How shops combine them

One way a new machine shop can combine them: ROBS covers the owner's down payment. A 7(a) loan covers machines, tooling, software, and working capital. A 504 loan is added later, or used instead, when the shop buys a building or a large machine it will keep for 10 years or more. There is no single right answer. The best mix depends on how many machines you are buying, when they arrive, and how long it will take to reach steady revenue.

7. Checklist before you apply

Know your total project cost: machines, freight, rigging, tooling, CAM and ERP software, leasehold work, and 6+ months of payroll and rent.
Line up your 10% (or 15% for a 504) and be ready to show where it came from.
Write a business plan with realistic machine use. Lenders test whether cash flow can cover the payments.
Get firm machine quotes with model and delivery dates.
If you use ROBS, finish the setup and move the money before closing.
Ask the lender which rulebook your loan falls under: SOP 50 10 8 or 50 10 8.1.

Frequently asked questions

Can an SBA loan pay for CNC machines? Yes. Both 7(a) and 504 loans can finance machinery. The 7(a) can also cover working capital. The 504 requires at least 10 years of useful life on the equipment.

How much do I need to put down to start a machine shop with an SBA loan? At least 10% of total project cost for a 7(a) startup loan. For a 504, 15% if the business has operated for two years or less. Lenders can ask for more.

Is 7(a) or 504 better for a machine shop? 7(a) is better if you need working capital or want one loan for everything. 504 is better for large, long-life assets where a fixed rate matters.

Can I use my 401(k) to start a machine shop? Yes, through ROBS. It requires a C corporation, a new 401(k) plan, and yearly compliance work. The money can count toward your SBA down payment.

What is the most I can borrow? Up to $5 million per 7(a) loan. Since July 4, 2026, you can also have up to $5 million under a 504 ($5.5 million for manufacturing projects) without it counting against the 7(a).

About the author

Andrew Adams is the founder and CEO of LightsOut CNC, an automated 5-axis machine shop opening in November 2026 in the Los Angeles South Bay. He has 20 years of experience as an SBA business development officer and commercial lender.

More about Andrew and his other articles →

This article is for general information and entertainment purposes only. It is not legal, tax, or lending advice. SBA rules change often. Confirm current rules with your lender, CPA, or attorney before you apply.