SBA 504 LOAN
SBA Consultant
SBA 504 Loan
The 504 Loan Program provides approved small businesses with long-term, fixed-rate financing used to acquire fixed assets for expansion or modernization. 504 loans are made available through Certified Development Companies (CDCs), SBA's community based partners for providing 504 Loans.
The SBA 504 Loan program is a powerful economic development loan program that offers small businesses another avenue for business financing, while promoting business growth, and job creation. As of February 15, 2012, the $50 Billion in 504 loans has created over 2 million jobs. This program is a proven success and win-win-win for the small business, the community and participating lenders.
SBA 504 LOAN - Fixed Asset Loan Program
How are 504 loan programs structured? 504 Loans are typically structured with SBA providing 40% of the total project costs, a participating lender covering up to 50% of the total project costs, and the borrower contributing 10% of the project costs. Under certain circumstances, a borrower may be required to contribute up to 20% of the total project costs.
SBA 504 LOAN - Certified Development Companies
What are Certified Development Companies (CDC's)? A Certified Development Company (CDC) is a nonprofit corporation that promotes economic development within its community through 504 Loans. CDCs are certified and regulated by the SBA, and work with SBA and participating lenders (typically banks) to provide financing to small businesses, which in turn, accomplishes the goal of community economic development. There are over 260 CDCs nationwide each having a defined Area of Operations covering a specific geographic area. The area of operation for most CDCs is the state in which they are incorporated.
SBA 504 LOAN - Eligibility Requirements
Does my business qualify for an SBA 504 Loan? To be eligible for a 504 Loan, your business must:
be operated for profit
fall within the size standards set by the SBA.
Under the 504 Program, a business qualifies if it has a tangible net worth not more than $15 million,
Must have average net income of $5 million or less after federal income taxes for the preceding two years prior to application.
Loans cannot be made to businesses engaged in nonprofit,
Cannot be passive owner
Cannot operate in speculative activities.
Additional eligibility criteria must be complied with.
SBA 504 LOAN - Other Beneficial Business Qualities
What other beneficial goals does the SBA look for to approve an SBA 504 Loan? As per the Small Business Administration guidelines, in addition to the eligibility requirements listed above, there are a few additional qualities which can increase your likelihood of SBA 504 loan approval besides job creation.
Community Development Goals:
Improving, diversifying or stabilizing the local economy;
Stimulating other business development;
Bringing new income into the community;
Assisting manufacturing firms (North American Industry Classification System (NAICS), Sectors 31 to 33) and all of its production facilities located in the United States
Assisting businesses in Labor Surplus Areas;
Public Policy Goals:
Revitalizing a business district of a community with a written revitalization or redevelopment plan;
Expanding exports;
Expanding small businesses owned and controlled by women;
Expanding small businesses owned and controlled by veterans (especially service-disabled veterans);
Expanding minority business development;
Aiding rural development;
Increasing productivity and competitiveness (retooling, robotics, modernization, competition with imports);
Modernizing or upgrading facilities to meet health, safety, and environmental requirements;
Assisting businesses in or moving to areas affected by Federal budget reductions, including base closings, either because of the loss of Federal contracts or the reduction in revenues in the area due to a decreased Federal presence; or;
Reduction of rates of unemployment in Labor Surplus Areas determined by the Secretary of Labor; or Reduction of energy consumption by at least 10 percent;
Increased use of sustainable design, including designate that reduce the use of greenhouse gas emitting fossil fuels, or low-impact design to produce buildings that reduce the use of non-renewable resources and minimize environmental impact, or
Plan, equipment and process upgrades or renewable energy sources such as the small-scale production of energy for individual buildings or communities consumption, commonly known as micropower, or renewable fuels producers including biodiesel and ethanol producers.
Program Terms
Versatile Terms and Amortization
Interest rates on 504 Loans are correlated with the current market rate for 5-year and 10-year U.S. Treasury issues. Loan maturities of 10 and 20 years are available. Fees may be financed with the loan.
Collateral Requirements
Project Assets and
Personal Guarantees
Generally, the project assets being financed will need to be placed as collateral for the loan. Also, personal guarantees from every owner having an ownership stake of 20% or more will also be required.
Maximum Loan Amounts
Around $5 Million and one job for every $65,000
While there is no maximum project size, the maximum SBA loan amount is $5 million. Generally, a business must create or retain one job for every $65,000 guaranteed by the SBA. Other criteria apply.
504 Fixed Asset Business Loan
The Standard 504 Program allows loan amounts up to $5 million. The US Small Business Administration 504 Loan or Certified Development Company program is designed to provide financing for the purchase of fixed assets, which usually means real estate, buildings and machinery, at below market rates.
SBA 504 Real Estate Purchase
Typically the borrower must contribute 10% of the total project cost; their bank lends 50% at their own rate and term (as long as the term is at least 10 years), and has a first lien on the assets being financed; and the CDC lends 40%, with a second lien. If the financing is for real estate, as most 504 loans are, the CDC's loan is for twenty years at a fixed rate of interest.
504 Certified Development CO.
A Certified Development Company (CDC) is a nonprofit corporation that promotes economic development within its community through 504 Loans. CDCs are certified and regulated by the SBA, and work with SBA and participating lenders (typically banks) to provide financing to small businesses, which in turn, accomplishes the goal of community economic development.
