Funding Expansion: Follow the Money Before You Borrow It
Updated: 1 day ago
The short version: The smartest way to fund an expansion is to tap four sources in order: the cash already trapped inside your operation, then the tax strategies you're probably not using, then the state and local incentives you have to negotiate before you commit, then the grants you can earn with a plan and some lead time. Too often manufacturers start with the bank and skip all four.
On October 23, 2026, at FABTECH in Las Vegas, I sat on a panel with three people who find money for manufacturers for a living. They look outside the business, at grants, tax credits and incentives. I look inside it. Put the four of us side by side and you get a funding playbook most owners never see, and a few expensive mistakes you can avoid.
Note: This piece is built from the FABTECH 2026 Leadership Exchange panel "Follow the Money: Hidden Funding, Tax Strategies & Profit Levers for Fabricators" (Las Vegas, October 23, 2026). Panelist points are paraphrased from the session. Client examples use fictional names. This is general guidance, not tax, legal or M&A advice.
Four Panelists, One Question: Where's the Money?
The panel was called Follow the Money, and the lineup was built like a relay team.
Micki Vandeloo, President of Lakeview Consulting, moderated and covered grants.
Alex Bagne, President of ICS Tax, covered tax strategy, cost segregation and R&D credits.
Patrick Hanlon, Director at KBKG, covered state incentives and site selection. (Patrick started his career on the government side of the table doing economic development, so he knows exactly how the other side thinks.)
And then there was me. When it was my turn to introduce myself, I said it plainly: Micki, Alex and Patrick help you find funding from outside the company. My team and I look for the funding that's already inside it. Cash from operations. More profitability. Speed. Cash freed up from working capital to help pay for the wonderful new equipment you're dreaming about.
Here's what struck me sitting up there. Every one of us, from four completely different angles, kept landing on the same lesson. The money is almost always closer than you think. Especially if you go looking for it before you need it.
A word about the person who made it all happen. Ila Lee and her team at SME produced this panel, and I'll be honest: it was one of the smoothest sessions I've ever been part of. The prep call, the questions in advance, the LinkedIn materials, even the walk-through of where to stand when we took the stage. It was pit-crew efficiency from start to finish, and she looked out for each of us the whole way. Ila, you've spoiled us. Great events don't happen by accident. They happen because someone sweats every detail so the rest of us don't have to.
Who Sold Jed That Land?
I asked the room if anybody remembered The Beverly Hillbillies. Plenty of hands went up (it's a fabrication crowd, after all, not a TikTok crowd).
You know the story. Jed Clampett is out shooting at some food, and up from the ground comes a-bubbling crude. Oil. Black gold. Texas tea.
But here's the part they didn't talk about. Somebody sold Jed that land. They sold it as farmland, took their money and went off feeling pretty good about the deal. And the oil was sitting under their feet the whole time.
After 30 years of operational diligence on more than 500 companies, I told the audience what I'll tell you: ninety-nine out of a hundred companies I've assessed have significant value they don't see. They've got oil under their farmland.
That matters enormously when you're funding expansion. Because the most expensive dollar you'll ever spend on a new building is the one you didn't need to borrow.
Source One: The Cash Already Sitting in Your Operation
I shared a story on stage that still makes me shake my head. It comes straight from Shocking Profit.
Bob was the CEO of a private-equity-owned company. He was weighing a major investment and needed board approval. So I asked him a simple question: how much could he spend without getting approval?
Fifty thousand dollars.
Then we studied his inventory in detail. We looked at lead times, usage and what the business actually needed to serve customers. The company was carrying about $8 million in inventory. The business, in reality, needed about $5 million.
That's $3 million of inventory that wasn't adding value. It was covering up for other process issues. And the man who had to ask permission to spend $50,000 on equipment had a team that had quietly committed $3 million of the company's cash to the warehouse floor.
Nobody did anything wrong there. Nobody was being careless. The system simply let inventory grow without anyone treating it like the capital spending it really is.
Inventory is capex. It just doesn't come with an approval form.
I shared a second example from a project my team is working on right now. The company has built a backlog. Demand is growing. Like a lot of fabricators, they're struggling to find enough people, and sometimes enough material, so the natural answer is to invest in new equipment and automation.
Before writing that check, we analyzed how the work actually flows today. In about eight weeks, by taking the waste out of their current approach, they'll be able to work through that backlog and generate hundreds of thousands of dollars of cash quickly. The internal funding was already there. It just wasn't being used.
Why Busy Plants Rarely Know Their Real Capacity
When a company tells us it's planning an expansion, one of the first questions we ask is, "What's your OEE today?" (OEE, or overall equipment effectiveness, measures how much of your equipment's theoretical capacity you're actually turning into good parts.)
You can imagine the answers. "OEE? What do you mean?" Or, "We're full." And then, a few questions later, we learn "full" means one shift.
I get it. These leaders have been running their business, not studying it. They haven't been challenged. Here's the line I used on stage, and I believe it more every year:
Success is the great camouflage.
It sounds backwards, but success is one of the main reasons companies don't know what they're already built to do. Their capacity has never been tested. They've never been pushed.
We usually get called in at one of two moments. The first is extreme pain: the demand is there, and they can't fill it. The second is a change in ownership, when the new owner wants to know what the business can really accomplish.
I've watched expansion plans get all the way to the finish line, with drawings done and everyone agreeing internally, and then stall when somebody finally asks, "What's your capacity today? Do you really need this? How do you know?" Nobody can answer. Just a chorus of "We're always busy."
Busy isn't a capacity number.
A Seafood Story: 40% More Output, No Capital
Imagine a seafood processor we'll call Catch of the Day Foods. They had just landed a major warehouse-club account. The plant was running 24 hours a day, seven days a week. People were exhausted. Every line was full.
Of course they said, "We need to expand." Thank goodness they didn't have time to build a new plant.
When we looked at the operation, the equipment they already owned was capable of roughly 40% more output. The president waved off a long study and said, "Give us eight weeks."
Eight weeks later, they had the 40% additional output. And they had gone from a seven-day workweek to a five-day workweek. No new capital. No new people.
Profitability jumped, because all their overhead was now spread over significantly more business. And when they did eventually build the next plant, they brought that faster pace with them instead of copying their old waste into a brand-new building.
Fix the plant you have before you finance the plant you want.
Source Two: Tax Strategy Most Fabricators Leave on the Table
Alex Bagne brought the tax lens, and two of his points deserve a second look from every owner in the room.
The first was a misconception about R&D credits. Plenty of manufacturers assume they don't qualify because the innovation came from somewhere else, or because they think research credits are for labs in white coats. As Alex put it, many manufacturers don't realize they're innovating, so they never claim the R&D credit they've earned. If your team is solving technical problems to make, improve or adapt a product or process, it's worth a conversation with a specialist.
The second was cost segregation. Normally, when you invest in a commercial building, you depreciate that investment over a lengthy 39 years. A cost segregation study breaks the building into its components, and many of those components can be depreciated much faster. That can change the cash picture of an expansion significantly, especially in the early years when cash is tightest.
Alex also talked about companies weighing whether to build on land they already owned, and how the right structure can open up more than one option. His underlying message lined up with everything else on the panel: there are often multiple opportunities hiding inside a single decision, and you only see them if you look before you lock in.
It's worth knowing who you're hearing from. Alex is a JD, CPA, MBA and Certified Cost Segregation Professional, and a past president of the American Society of Cost Segregation Professionals. Beyond cost segregation and R&D credits, his firm, ICS Tax, works on a handful of other incentives fabricators often overlook: the 179D and 45L energy-efficiency incentives, IC-DISC export incentives for companies that sell overseas, and the federal rules that decide whether a repair or equipment purchase gets written off now or capitalized over time. If your expansion touches energy efficiency, exports or a big maintenance overhaul, that's another conversation to have early. There is a lot in that paragraph that I frankly don't know anything about, but Alex does.
I'll be straight with you. I'm not a tax advisor, and nothing here is tax advice for your situation. But I've sat in enough deal rooms to know this pattern well. The tax impact of an expansion is often treated as an afterthought, handled at year-end, long after the decisions that drive it have been made.
Source Three: Incentives You Have to Negotiate Before You Commit
Patrick Hanlon opened his segment by naming the biggest misconception he sees: manufacturers assume state and local incentives are for Fortune 1000 companies, or that they'd have to pick up and relocate to qualify. Usually, neither is true. These programs are often very inclusive of smaller businesses and smaller projects. You don't need to build a whole new facility.
Then he explained the rule that should change how you plan.
Most incentive programs include what's called a "but for" clause. It means that, but for the incentive, this project would not happen. In other words, the government wants to believe its money is making the difference. Patrick estimated that roughly 75% of the opportunities out there have to be negotiated in advance.
That has real consequences. If you place the order for a large piece of equipment, and then go looking for incentives right before it's delivered, you may have already disqualified yourself. The date you commit can matter more than the date you spend.
Patrick described a company that grew from about 10 employees to 45 without planning for that growth. Because they were in one of the few states that allow some incentives to be captured retroactively, they still got a benefit. But if they had planned ahead, he could have negotiated a meaningfully better package.
He shared a few other points worth writing down.
Programs can layer. One program usually doesn't preclude another, and state and federal programs often complement each other. Some federal programs actually require a state and local match.
The bar is lower than you'd guess. Patrick's rule of thumb: a project that affects 10 or more jobs, or as little as $5 million in capital, is enough to pick up the phone and negotiate. If you're anywhere in that range, it's worth a call to check the tires.
Geography matters, even within a state. He described how buying a $500,000 machine can involve a simple process in one part of a state and a roughly three-month process with lawyers, bonds and studies in another.
Keep the project competitive. He cautioned that if a state learns you've already decided to locate there, incentives can come off the table. Genuine alternatives keep the conversation honest.
Hiring, capital and training are the big three. Nearly every state has programs tied to those three activities, plus location-based programs like enterprise zones and opportunity zones, and targeted hiring programs for veterans and others.
Source Four: Grants Are Earned Money, Not Free Money
Micki Vandeloo brought a healthy dose of reality to the grants conversation. Grants belong on the list right next to incentives and tax strategy, but they come with their own rules.
Grants take work. Applications are complex and time-consuming, and they require information and resources from your team. And winning the grant isn't the finish line. After you get it, you have to report. You have to keep records of exactly what you spent the money on, and you have to spend it on what you said you would in the application.
Micki's practical advice was about timing and visibility. She wants to know a client's yearly plan, expenditures and capex as early as possible, and she suggested about two months as a realistic minimum lead time when you're going after a grant.
She also flagged a trend worth watching: training grants have changed a lot. They now cover virtual training, one-on-one training and, increasingly, AI training for employees. Patrick added that governments tend to follow trends, so automation and AI training are showing up more and more in reimbursement and grant programs.
Here's the operator in me talking. If you're going to invest in automation, the training that comes with it is often where grant dollars can help most. And if your people aren't trained to run the new equipment well, you'll just be producing waste faster.
The Common Thread: Get Everyone in the Room, Early
When the moderator asked how to actually build a fundable project, Patrick's answer could have come straight from my book. Get everyone to the table. HR, operations, finance, legal if you have it. Everyone who has a role to play in the project.
Then define the project. What's the goal? What outcome are you looking for? Then put pencil to paper. How many people will you employ? How much equipment do you need? Do you really need to expand the building? Build it out in numbers so you can see the real ROI, and include the incentives and tax impact in those numbers, ideally year by year over the next ten years.
Notice what has to happen first. Before you can answer "how much equipment do we need," you have to know what your current equipment can actually do. That's where the inside money and the outside money meet. An honest capacity baseline makes your incentive application stronger, your ROI more believable and your borrowing smaller.
In Shocking Profit, I call this kind of thinking roughly right, not precisely wrong. You don't need a perfect model. You need honest numbers, gathered early, by the people closest to the work.
One more source came up near the end, during Q&A: your suppliers. If you've built a real relationship (not just spot buying), bring them into the conversation when a major new piece of business is on the horizon. Suppliers will sometimes get involved and help provide an alternative path to funding.
Patrick also made a point about managing incentive commitments that applies to every promise you make. Be conservative when you set your hiring and spending goals. And if you're falling behind, tell the agency early. He's seen too many companies wait until they're in default and then have to renegotiate from scratch. Several states, including Indiana and Missouri, will still give you a proportional benefit if you hire 75 instead of the 100 you promised, but only if you've kept the relationship healthy.
Funding Expansion Starts on the Shop Floor
My closing advice to the room was simple. Get curious. Especially if you're in leadership and you don't spend much time where the work gets done, walk the floor. In Lean, we call this going to Gemba: going to the actual place where value is created.
I promise you, it's incredible, sobering and exciting all at once. You'll find things you never expected. And you'll see problems nobody has named yet. Unrecognized problems don't get solved. Undiscovered value doesn't get mined.
I also talked about exit readiness, because funding and exit are more connected than most owners realize. Every business owner is going to exit. It doesn't have to be planned, but it can always be prepared for. A business that's ready for an exit is one where leaders can take a two-month vacation and everything runs fine. If you can't go on vacation without your laptop, that's a sign you're not ready. Whether your exit is five years away or fifty, the same habits that make your business fundable make it valuable.
My main job for 30 years has been getting hired by private equity firms after they buy a company, to extract the value the previous owner didn't know was there. Every dollar we find after the sale is a dollar the seller could have captured before it.
The best time to find your hidden money is before someone else does.
Key Takeaways for PE Operating Partners | Key Takeaways for Owner-Operators |
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Frequently Asked Questions
What's the best way to fund a manufacturing expansion?
Start inside the business. Before borrowing, measure your real capacity and working capital. Many manufacturers can free up significant cash by reducing excess inventory and can gain output by removing waste from current processes, sometimes avoiding the expansion altogether. Next, review tax strategies like cost segregation and R&D credits with a qualified specialist. Then explore state and local incentives and grants, ideally before you commit to the project. Layering these sources in that order usually means a smaller loan, a stronger ROI and a better negotiating position with lenders and economic development agencies. This is general guidance, so involve your own advisors for your situation.
Do small manufacturers qualify for state and local incentives?
Often, yes. A common misconception is that incentives are only for large corporations or companies willing to relocate. Many programs are designed for smaller businesses and smaller projects, and they typically focus on three activities: hiring, capital investment and training. As one rule of thumb shared at the FABTECH panel, a project that affects 10 or more jobs, or as little as $5 million in capital, is enough to negotiate. Location-based programs, such as enterprise or opportunity zones, and targeted hiring programs for groups like veterans may also apply. Eligibility varies widely by state and county, so speak with a specialist before you finalize plans.
When should I start looking for incentives before an expansion?
Before you commit. Many incentive programs include a "but for" clause, meaning the project would not happen without the incentive. If you've already placed the equipment order, signed the lease or announced the move, you may have weakened or eliminated your eligibility. Only a limited number of states allow certain incentives to be claimed retroactively. For grants, plan on at least two months of lead time, and longer when public hearings are involved. The practical move is to share your capital and hiring plans with advisors as part of annual planning, so timing never costs you money.
How do I know if I really need more capacity?
Measure it before you buy it. Start with overall equipment effectiveness (OEE), which shows how much of your equipment's theoretical capacity becomes good product. Then look at shifts, changeovers, downtime and how work actually flows across the floor. Many plants that feel full are running one shift or losing large amounts of time to waste and workarounds. A focused assessment can often reveal hidden capacity within weeks. In one example from the panel, a fully loaded processor gained about 40% more output and moved from seven days to five days a week without new capital or headcount.
Can I combine grants, tax credits and incentives on one project?
Usually, yes. Programs can often be layered, and one generally doesn't prevent you from using another. State and federal programs frequently complement each other, and some federal programs require a state and local match. The key is coordination. Bring your operations, finance, HR and legal leaders together early, define the project's goals in numbers and map every potential opportunity in one place. Keep in mind that grants come with reporting obligations, and incentives come with hiring or investment commitments, so set conservative targets and communicate early with agencies if plans change.
Your Next Move
If you'd like to see what this looks like inside your own operation, that's what we do at The ProAction Group. Call us at (312) 726-6111 for a complimentary consultation.
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