Jamieson’s Spinning has secured £45,850 from Highlands and Islands Enterprise to increase capacity and productivity.
The family-owned business operates Shetland’s only commercial woollen mill in Sandness.
The funding is also expected to create more jobs in the long-term.
Jamieson’s has reported growing demand for its hand-knitted yarns, which has “accelerated considerably” during the pandemic.
Previously two employees could operate one machine but with Covid restrictions this was no longer possible.
Purchasing a new machine will help the company double its output of yarn packs and explore new market opportunities in China. It will also make factory production more efficient.
Peter Jamieson, of Jamieson’s, said they had “struggled to cope” with existing demand.
Mr Jamieson said: “Sales of our hand knitting yarns have been growing steadily for a good few years, lockdown accelerated demand to a point where our existing machinery struggled to cope.
“With HIE’s valuable assistance we have been able to invest in new machinery that will more than double our capacity for these types of yarn.
“This will allow turnover to bounce back quicker, safeguarding jobs and creating opportunities for the future”.
HIE Shetland head of business growth Andrew Gear said: “At a time when businesses continue to face challenging operating and trading conditions, this is very welcome news from Jamieson’s.
“The firm has been working hard to adapt and continue its growth.
“This project will help safeguard and create jobs in our local community and we very much look forward to continuing to work with Jamieson’s.”