SBA 504

Loan Structure:

• SBA-Backed Portion: Typically 40% of the total project cost, provided through a Certified Development Company (CDC) and backed by a government guarantee.

• Lender Portion: A third-party lender (usually a bank) finances 50% of the project cost.

• Borrower Contribution: The business owner must contribute at least 10% of the project cost (this can be higher for special-purpose properties or new businesses).

Eligible Uses:

• Purchase of existing buildings.

• Purchase of land and land improvements, including grading, street improvements, utilities, parking lots, and landscaping.

• Construction of new facilities or modernizing, renovating, or converting existing facilities.

• Purchase of long-term machinery and equipment.

• Refinancing debt in connection with an expansion of the business through new or renovated facilities or equipment.

Loan Terms:

• Real estate: 10, 20, or 25 years.

• Equipment: 10 or 20 years.

Interest Rates:

• The SBA portion has a fixed interest rate based on the current market rate for 5- and 10-year U.S. Treasury issues plus an increment above the Treasury rate.

• The lender portion typically has a variable rate.

Job Creation Requirement:
Businesses must create or retain one job for every $75,000 guaranteed by the SBA ($120,000 for small manufacturers) or meet a public policy goal such as community development or public policy objectives (e.g., rural development, minority-owned businesses).
Eligibility:

• Must be a for-profit business operating in the U.S.

• Must meet SBA size standards (based on industry).

• Must have a tangible net worth of less than $15 million and an average net income of less than $5 million after taxes for the preceding two years.

• Must demonstrate a need for the loan proceeds and the ability to repay the loan.

Collateral:
The loan is typically secured by the assets being financed, such as real estate or equipment.
Fees:
The SBA charges various fees, including a guaranty fee and servicing fees, which can be financed with the loan.
Benefits:

• Long-term, fixed-rate financing with lower down payments.

• Access to substantial funding amounts.

• Encourages business expansion and job creation.

• Competitive interest rates.

Application Process:

• Businesses apply through a Certified Development Company (CDC) and a participating lender.

• The lender and CDC work together to structure the loan and submit the application to the SBA for approval.

• If approved, the funds are disbursed and used for the intended purpose.

 

The SBA 504 Loan Program is an excellent option for small businesses looking to make significant investments in their operations, offering attractive terms and supporting economic development.