What is a 504 Loan?
A 504 loan is a loan guaranteed by the Small Business Administration (SBA) that is typically used to finance the purchase of fixed assets, such as real estate or equipment, for a business.
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What is a 504 loan?
The 504 loan is a loan guaranteed by the U.S. Small Business Administration (SBA) that is available to small businesses and certain non-profit organizations for the purchase of fixed assets, such as land, buildings, or equipment.
The interested party applies for the loan through a certified development company (CDC), which in turn works with a lender to provide the financing. The SBA guarantees repayments to the lender in case of default, which reduces the risk for the lender and makes it more likely that they will approve the loan.
The maximum loan amount is $5 million, and there is no minimum. The interest rate is fixed for the life of the loan, and repayment terms are up to 10 years for working capital and 25 years for real estate.
504 loans can be used for a variety of purposes, including expanding or upgrading facilities, purchasing equipment or machinery, or making leasehold improvements.
How can a 504 loan be used?
A 504 loan can be used for a wide variety of business purposes, including:
-Buying real estate
-Building or improving a facility
-Purchasing machinery or equipment
-Making leasehold improvements
-Refinancing debt associated with any of the above activities
What are the benefits of a 504 loan?
The 504 loan program provides small businesses with long-term, fixed-rate financing used to acquire fixed assets for expansion or modernization.
504 loans are each composed of two parts:
A conventional loan provided by a lending institution, such as a bank, credit union, or community development financial institution (CDFI). The maximum amount of this loan cannot exceed 50% of the project cost. The lender must also provide a equity injection in the form of a subordinated debt loan or preferred equity investment.
The remaining portion of the project cost is financed through a direct loan from a Certified Development Company (CDC). This portion of the loan cannot exceed 40% of the project cost and has a maturity of 10 years.
What are the eligibility requirements for a 504 loan?
The 504 loan program provides financing for major fixed assets, such as owner-occupied commercial real estate and equipment. SBA 504 loans can be used to finance the total project cost, which can include the purchase price, renovations, business equipment, and other associated costs such as architect and engineering fees or environmental studies.
To be eligible for a 504 loan, the following requirements must be met:
-The project must be located in the United States
-The business must be classified as a small business by SBA standards
-The business must have a tangible net worth of less than $15 million and an average net income after taxes for the past two years of less than $5 million
-The project must create or preserve jobs
How do I apply for a 504 loan?
To apply for a 504 loan, you’ll need to work with a participating lender. You can find a list of participating lenders on the SBA website.
The application process will vary depending on the lender you choose, but in general, you can expect to provide the following information:
-A business plan
-Personal financial statement
-Tax returns for yourself and your business
-Documentation of your collateral