SBA 504 Loans

For businesses looking to expand through real estate or equipment purchases, the SBA 504 loan program offers a targeted solution. Designed to provide long-term, fixed-rate financing, this loan is specifically tailored for acquiring assets that drive business growth. Whether you need new commercial equipment, land, or a building, the SBA 504 loan could be the key to achieving your goals.

The SBA 504 loan is a long-term financing option designed to support the acquisition of fixed assets like commercial real estate or equipment. The program is managed by Certified Development Companies (CDCs), nonprofit organizations certified by the SBA to facilitate these loans.

Unlike general-purpose SBA loans, the 504 loan is focused on funding projects that create jobs or contribute to community development. With funding limits of up to $5.5 million for eligible projects, the 504 loan is ideal for businesses that are ready to make a significant investment in their future.

An SBA 504 loan involves three primary participants:

1. The Borrower: Provides at least 10% of the total project cost as a down payment.
2. A Certified Development Company (CDC): Covers up to 40% of the project cost through an SBA-guaranteed loan.
3. A Private Lender: Provides the remaining 50%, often through a bank or credit union.

This shared-risk approach allows businesses to secure substantial funding while benefiting from manageable repayment terms.

• Loan Limits: Up to $5 million for most projects, and up to $5.5 million for energy-efficient or manufacturing-related projects.
• Repayment Terms: Available in 10, 20, or 25 years, allowing for predictable monthly payments.

The SBA 504 loan is specifically designed for:

1. Purchases:
    
   • Land
   • Buildings
   • Long-term commercial equipment

1. Improvement Projects:
    
   • Renovating existing properties
   • Landscaping, parking lots, streets, and utilities

However, the SBA 504 loan cannot be used for working capital, inventory, debt consolidation, or speculative investments.

• Low Down Payment: At least 10% of the project cost, making it more accessible than conventional loans.
• Long Repayment Terms: Up to 25 years for real estate projects, reducing monthly financial strain.
• Community Development: Encourages businesses to create or retain jobs, benefiting the local economy.

To qualify for an SBA 504 loan, businesses must meet the following criteria:

• Operate as a for-profit entity based in the U.S.
• Meet SBA size standards, with a tangible net worth under $15 million and net income below $5 million over the last two years.
• Demonstrate the ability to repay the loan and show that the project will support business growth.
• Be unable to secure financing through conventional means.

Applying for an SBA 504 loan involves several steps:

1. Find a CDC: Use the SBA’s resources to locate a Certified Development Company in your area.
2. Submit an Application: Key business stakeholders, including owners with 20% or more equity, will need to complete the application process.
3. Provide Documentation: Prepare business financials, a project plan, and personal credit information.
4. Await Approval: The approval process can take 30 to 90 days, so plan accordingly.

While the SBA 504 loan is ideal for purchasing fixed assets, it may not suit every business. Here are some alternatives:

• SBA 7(a) Loans: More flexible for general business needs, including working capital and inventory.
• Equipment Loans: Easier to secure and often faster to fund, but may lack the long terms and favorable terms of a 504 loan.
• Commercial Real Estate Loans: A simpler option for businesses focused solely on property acquisition.

The SBA 504 loan is an excellent choice for businesses looking to invest in their future through real estate or equipment purchases. With its low down payment, long repayment terms, and dedicated support from Certified Development Companies, it offers a sustainable way to fund significant projects.

If your business is ready to grow, explore the SBA 504 loan as a powerful tool to achieve your goals. Let’s discuss how it can work for you—reach out today to learn more!