SBA 504 Loans: A Definitive Guide
Do you have a small business that would grow and thrive with the help of a loan? Many small business owners often have trouble qualifying for financing, which make company growth seem out of reach. For these business owners, a Small Business Administration (SBA) loan may be the answer. The SBA created these loans in order to help advance the economic prosperity of local communities. There are several types of SBA loans, but SBA 504 loans are almost always recommended for businesses looking to acquire real estate, equipment, or machinery for expansion purposes.
SBA 504 loans are fixed-rate, long-term loans designed to expand capital access. A relatively low down payment of 10 percent equity is always required. After the down payment is received, approximately 50 percent of the loan will come from a private-sector lender while up to 40 percent is provided by a Certified Development Company (CDC). CDCs are nonprofit corporations that financially aid the economic development of various communities and regions. Once all parties finalize the loan it gets funded by a full-guarantee SBA note, which then acquires a second lien on the acquired capital the small business receives.
In order to be eligible for an SBA 504 loan, a small business must operate for profit only; have a net worth of less than $7.5 million, and an average net income of less than $2.5 million after taxes for the next two years after receiving the loan. These loans can also only be used for the purpose of purchasing or renovating existing buildings, land or land improvements, the construction of brand new facilities, debt refinancing related to business expansion, or the purchase of long-term machinery. SBA 504 loans cannot be used for inventory or working capital, refinancing, or consolidating debt.
Despite the stringent eligibility requirements, SBA 504 loans are known to provide a wealth of immediate and long-term benefits to small business owners. Though the maximum loan amount is $5 million, there is no limit to project size, an incredible advantage for businesses looking to expand. Additionally, along with fixed interest rates small businesses can also enjoy longer loan amortizations, 90 percent financing, no balloon payments, and savings that eventually lead to more cash flow for the business. There is virtually no limit to the financial benefits your business could enjoy if you qualify for SBA loan assistance. If you think your small business is eligible for this type of loan, contact your local CDC and get the process started today!