SBA 504 Loan Guide

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The SBA 504 Loan Program is administered by the U.S. Small Business Administration in conjunction with the local CDC. Offered to businesses that contribute to the economy. Community development. A guide to loan features and ethics. The SBA 504 program is an economic development loan program that promotes business growth and job building. It is controlled by the Federal Small Business Administration (SBA). It is managed in cooperation with the local CDC. Below is a guide to loan features and criteria.

SBA’s 504 Loan Program focuses on financing that leads to community development. 504 Loans are offered through Certified Development Companies (CDC), SBA’s community partner that makes 504 Loans. CDC to the economic development of the community. Private sector lenders, the CDC and SBA, work together to finance and guarantee portions of 504 loans.

How the SBA 504 Program Works?

Approved small businesses participating in the 504 Program receive long-term, fixed-rate funding on fixed assets that enhance the economic development of their communities. Financing is typically set up such that the SBA contributes 40% of the total cost of the project and the borrower contributes 10% of the project. Participating lenders cover up to 50% of the cost.

Use of 504 Loan Funds

Unlike other SBA 504 Loans, 504 program funds cannot be used for working capital, inventory, refinancing, or debt consolidation. Loan funds must be used for fixed asset projects, such as the purchase of land, machinery, or facilities. Income must go to fixed assets (and certain soft expenses) that include:

  • Purchase of an existing building
  • Land purchases and land improvements, including grading, street improvements, utilities, parking lots, and landscaping;
  • Construction of new facilities or modernization, renovation or retrofitting of existing facilities
  • Long-term purchase of machinery or
  • Debt refinancing for business expansion through new or refurbished facilities or equipment

504 Loan Requirements

To qualify for an SBA 7A Loans, a business must be a for-profit organization and must meet size requirements established by the SBA. The company must have a net worth of less than $15 million and an average after-tax net income of $5 million or less for the previous two years. no loan Will be awarded to companies engaged in non-profit, passive or speculative activities. The maximum amount for a 504 loan is usually $5,000,000. Some manufacturers may be eligible for multiple 504 loans of higher amounts.

SBA guarantees $65,000. Small manufacturers must create or retain a percentage of one job per $100,000. On the other hand, some companies are eligible for assistance if they meet community development or public policy goals. These goals include improving local economies, bringing new income to communities, revitalizing business districts, expanding exports, expanding small Women, veterans or ethnic minorities. For a complete list of program goals, see the SBA website.

504 program loans have a maturity of 10 or 20 years. Interest rates on 504 loans are related to the market value of 5-year and 10-year U.S. Treasury bonds. 5- and 10-year-old America. Loan fees can be financed with it. Typically, projects funded by the program are used as collateral for loans and personal guarantees. Usually, you need 20% or more from the owner.

Type of baron

There are different and famous types of SBA loans you can apply for. So, consider what best suits your needs and circumstances.

Microloans. If you need less than $50,000 and want to repay it relatively quickly, an SBA microloan may be your best bet. A typical loan is about $13,000.

General Business Loans. Also called a 7(a) loan. These typical business loans can make up to $5 million but average around $337,000. There are two loan terms under the 7(a) umbrella: standard and express. Loans that are urgently needed can be expedited through the SBA Express program. This means you can get a response within 36 hours, but you can’t ask for more than $350,000.

Real Estate and Equipment Loans. Also called a CDC/504 loan. These loans are specifically for the purchase or renovation of land or buildings, and the purchase of equipment.

Disaster Loans. If you live in a disaster area declared by the SBA, you may be eligible for a loan to help you repair or rebuild your business.

Once you’ve decided what type of loan you want to apply for, it’s time to start preparing for your loan application. The application is more than a couple of pages filled with your signature and is a marketing proposal explaining why you need money, how it will be used, and how it can be repaid. business).