How to Fund a Manufacturing Acquisition in 2026
by Raises.com
This article is general information, not legal, tax, securities or investment advice. Laws, rates and programs change, and the details here may no longer be current. Confirm anything you plan to act on with your own counsel and accountant.
A manufacturing acquisition is funded in four layers: debt secured on the equipment and receivables, an SBA 7(a) or bank loan against cash flow, the seller's participation, and investor equity for the gap that remains. The machines and the working capital make the first layer possible. Two lender questions decide how big the second layer gets: who the customers are, and what the owner still does.
Why a manufacturer gets its own stack
A service business is bought mostly for its cash flow. A manufacturer comes with a shop floor: the CNC machines, the press brake, the forklifts, the steel on the racks and the invoices customers have not paid yet. Lenders can lend against each of those separately from the cash flow. That gives the stack an extra layer at the bottom.
The catch is working capital. A plant buys raw material weeks before the customer pays for the part, so the business needs cash on the day you take the keys, on top of the price. The purchase agreement sets it as a working capital target the seller delivers at close. Fund the price and forget the target, and the first large order empties the account.
1. The asset layer: machines, receivables and inventory
An asset-based lender lends against what it could sell if the business failed: the appraised value of the machinery, a share of the eligible receivables and sometimes the inventory. Book value does not count. A press depreciated to zero years ago can still carry real appraised value, which is why the lender orders its own appraisal of the equipment. Bring the equipment list with serial numbers.
Inside the $5M SBA 7(a) cap, the 7(a) lender takes a lien on these same assets. The machines become collateral for that one loan. Above the cap, the pieces split. An asset-based lender takes the receivables, inventory and equipment, a cash-flow lender sits beside it, and an intercreditor agreement says who gets paid from what. The asset-based line then moves with a borrowing base you report on a fixed schedule.
2. The cash-flow layer: SBA 7(a) or a bank term loan
The second layer is sized on what the business earns after its people, suppliers and existing debt are paid. The lender reads the tax returns and the financial statements side by side. When they disagree, the loan stalls until someone explains why. In a family-owned plant, look first at personal expenses run through the company and at how inventory was counted at year end.
The closest file we can point to is a trades business, not a plant. Cody Sechelski worked with Raises.com® on capital structure and lender sourcing to buy a profitable, family-run HVAC business in Texas. It was the first deal in a Gulf Coast specialty-trades platform. His test for the deals that close has three parts: financials that agree with each other, a business that survives the key-man test, and a team that keeps moving when the process drags. Each part applies to a plant.
The capital did not come from the first lender. The team ran a tournament across multiple capital firms through months of moving goalposts, and the final lender quoted three weeks and took two. The seller waited because the structure and the story held. Run your manufacturing deal the same way: several lenders at once, one data room, one set of numbers.
The two questions that size the loan
The first question is customer concentration. The lender asks for revenue by customer for the last three years, and a large share from one buyer means the loan depends on one purchasing department. Then it reads the contracts. In an asset purchase the supply agreements are assigned to your new company, and some of them need the customer's written consent before they move. Get the consent, or the renewal, before close.
The second question is the owner. In a family-run shop, find out who quotes the jobs, who sets the prices and who takes the call when the top customer has a problem. If every answer is the seller, the business fails the key-man test. Then the lender cuts the loan or wants a bigger seller note. Name a second person for each job before the lender asks.
3. The seller's participation
Seller participation is a seller note, rolled equity, or both. It fills part of the gap and keeps the seller in the business through the transition, which is the cheapest answer to the key-man question. Cody's deal used an equity-light structure with seller participation. Copy that pattern.
If an SBA loan is in the stack, the seller note has to follow the standby terms in the SBA's SOP 50 10 to count toward your equity injection. Those terms limit when the seller gets paid. Read the current version with your lender before you promise the seller a payment schedule.
4. Investor equity, raised last
Equity is a subtraction. Add the price, the working capital target and the closing costs, take away the asset layer, the cash-flow loan and the seller's piece, and what remains is your raise. Raise it last, because nobody knows its size until the debt is sized.
Your investors come in through a private placement memorandum (PPM), a subscription agreement and an operating agreement, under Rule 506(b) or Rule 506(c) of Regulation D. Rule 506(b) bars general solicitation. Rule 506(c) allows it, and every buyer must be a verified accredited investor. File Form D within 15 days of the first sale.
Ade worked with Raises.com® and went from no deals funded to two closed acquisitions. His thesis was real assets and defensible industries, with capital preservation and predictable returns as the goal. A manufacturer with its own machines and customers who stay after the sale fits that frame. Your presentation has to prove both.
The file a manufacturing lender asks for
Assemble this before the first lender call.
- Three years of business tax returns and financial statements, plus year to date.
- Receivables and payables aging reports, and the inventory listing.
- The equipment list with make, model and serial number.
- Revenue by customer for each year, and the supply agreements.
- Quality certifications customers require, such as ISO 9001.
- A Phase I environmental site assessment if the building is in the deal.
- Your personal financial statement (SBA Form 413), the LOI and the draft purchase agreement.
Check who owns the building. If the seller holds it in a separate company, you either buy it and add a real estate loan, or sign a lease the lender will underwrite as rent. Settle that before the LOI.
The four layers side by side
| Layer | Underwritten on | What they ask for | What it costs you |
|---|---|---|---|
| Asset-based loan | Appraised equipment, eligible receivables, inventory | Appraisal, aging reports, inventory listing | Borrowing base reports on a schedule |
| SBA 7(a) or bank term loan | Historical cash flow and debt service coverage | Tax returns, financial statements, personal financial statement | A personal guaranty; the SBA requires one from each owner of 20% or more |
| Seller participation | The seller's confidence in the business they built | A note or rolled equity, and a transition period | Seller payments, on SBA standby terms if SBA debt is in the stack |
| Investor equity | The whole story: assets, customers, the operator | PPM, subscription and operating agreements, model, data room | Ownership and the return terms you offer |
Frequently asked questions
Can I use an SBA loan to buy a manufacturing company?
Yes, if the deal fits under the $5M SBA 7(a) cap and the company meets the SBA size standard for its NAICS code. For manufacturers that standard is set by employee count.
How much equity do I need to buy a manufacturer?
The equity is whatever the price, working capital and costs leave after the debt and the seller's piece. Build the stack first. A buyer who quotes investors a figure before the lenders size the debt ends up quoting it twice.
What counts as customer concentration to a lender?
Concentration is any customer whose loss would leave the business unable to pay its debt, and each credit committee draws that line in its own place. No rule sets it. Bring the contracts, the renewal dates and the consents to assign.
What if the owner is the only one who quotes jobs?
Then the business fails the key-man test until you fix it. Write a transition period into the purchase agreement, keep the seller in through a note or rolled equity, and name who takes over quoting. Put that plan in the data room.
Raises.com® builds the structure behind the purchase of a business or a building: the PPM, the subscription and operating agreements, the CFA financial proformas and the data room. That keeps the raise legally and financially sound before anyone opens the file. See how acquisition capital gets structured at https://raises.com/buy-a-business, or book a strategy call at https://raises.com/call.
General information, not legal, tax, securities or investment advice. Laws, rates and programs change, and the details here may no longer be current. Confirm anything you plan to act on with your own counsel and accountant.