In manufacturing electrical machine cores, the electrical steel laminations are often mechanically cut, leading to residual stress and a deterioration in magnetic properties. Several cutting techniques are used in the industry, such as shear cutting, punching, and laser cutting. The influence of shear cutting on the steel microstructure and magnetic properties was investigated in this paper. A single sheet tester was used for the measurements of two different grades of non-oriented electrical steel at different induction levels (0.1-1.5 T) and a wide range frequency (3 Hz-1 kHz). A scanning electron microscope was used for the characterization of the microstructure (grain size) at the cutting edges. The mechanical properties near the edge of the lamination were measured using nanoindentation. An increase in magnetic loss due to cutting was observed to be similar to 20% for B35AV1900 and similar to 9% for 35WW300, corresponding to a damaged area extending up to a distance of similar to 170 and similar to 140 mu m, from the cut edge, respectively.