The SBA 504 loan is a government-backed loan that is available to small businesses. This loan can be used for a variety of purposes, including the purchase of real estate, machinery, or other equipment.
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What is a 504 loan?
The Small Business Administration (SBA) 504 Loan program provides financing for major fixed assets, such as owner-occupied commercial real estate and equipment. These loans are typically long-term, with a maturity of 10 years or greater, and offer low down payment options of only 10 percent.
The SBA 504 loan program is designed to promote economic development and job creation/retention by providing small businesses with long-term, fixed-rate financing for major capital investments. These investments might include:
– Commercial real estate
– Machinery and equipment
– Renovations/improvements to existing facilities
What are the benefits of a 504 loan?
The 504 loan program provides small businesses with long-term, fixed-rate financing used to acquire real estate, machinery and equipment, and other fixed assets.504 loans are available through Certified Development Companies (CDCs), the Small Business Administration’s 504 Loan Program’s primary boosters.
There are numerous benefits to obtaining a 504 loan, including:
-Job Creation and Retention: Small businesses that receive a 504 loan must create or retain one job for every $65,000 provided by the SBA, on average. In addition, businesses must demonstrate a need for the requested long-term financing.
-Lower Down Payment: A small business only needs to provide 10 percent of the total project costs as a down payment with a 504 loan, as opposed to the 20 to 30 percent required by conventional lenders. The remaining funds come from a senior lender and CDC. This low down payment makes 504 financing an attractive option for small businesses.
-Long Repayment Terms: A typical 504 loan has a repayment term of 10 years for equipment and 20 years for real estate. This creates manageable monthly payments and frees up cash flow for working capital needs.
-Fixed Interest Rates: The interest rate on a 504 loan is fixed throughout the life of the loan, providing budget certainty for small businesses.
-Use of Proceeds: Proceeds from a 504 loan can be used to finance most types of fixed assets, including real estate, buildings/building improvements, land acquisition, construction/renovation and machinery/equipment..
How can I get a 504 loan?
The 504 loan program provides long-term, fixed-rate financing to small businesses for the purchase of major fixed assets, such as real estate or equipment.
To qualify for a 504 loan, businesses must meet the following criteria:
-Be a for-profit business
-Engage in business activity in the U.S.
-Have a tangible net worth of less than $15 million and average net income after taxes of less than $5 million over the previous two years
-Use the 504 loan proceeds for fixed asset acquisition or construction, such as real estate, buildings, machinery, and equipment
Businesses that are not eligible for 504 financing include those engaged in speculative or illegal activities, passive businesses such as holding companies or investment firms, and non-profit organizations. In addition, SBA Express and Community Express loans are not eligible for refinancing under the 504 program.
What are the requirements for a 504 loan?
Minimum requirements for a business to qualify for a 504 loan include being a for-profit, U.S.-based business; having a tangible net worth of less than $15 million and an average net income after taxes for the preceding two years of less than $5 million; and creating or preserving one job per $65,000 of 504 loan funds.