The SBA 504 loan is a loan that SBA-approved Certified Development Corporations (CDCs) approve, close, fund and service. Prospective borrowers choose a CDC that serves the location of their project, and the CDC will work with a financial institution (usually a bank or credit union) to gain approval from the institution and the SBA.
The objective of a 504 SBA loan is to promote economic development and create jobs by assisting small business owners in purchasing, constructing, expanding, or refinancing either commercial property or long-term equipment or both as the projects often finance the real estate AND the equipment being purchased to install in the real estate.
The project financing is broken up among three parties under the 504 program; the applicant contributes a minimum of 10%, the financial institution lends the applicant 50%, and the CDC/SBA lends 40%. For some projects, the applicant may inject 15% or 20% resulting in a reduction in the CDC/SBA portion of the project financing.
The 504 SBA Loan Requirements
Due to the unique nature of the SBA 504 loan program, you’ll need to meet the following standards to qualify to participate in this program.
-Be an operating business (not a passive investment company).
-Be a for-profit entity.
-Be small – which the SBA defines as tangible net Worth of <$15Mn and average net income after taxes the last two years of <$5Mn.
-Be operating in the United States or a U.S. territory.
-Demonstrate a need for the loan proceeds
Delving into #5 above a bit further, demonstrating a need for the loan being applied for is often accomplished by preparing a viable business plan.
It also helps to have good personal credit which demonstrates a track record of paying back loans.
Included in the business plan should be the number of jobs being created and/or retained by the project being contemplated. However, if the project or ownership can advance one of several public policies or community development objectives, the job creation requirement may be relaxed.
For more information, give us a call today to speak to a Loan Officer and we can quickly screen your request to see if it will meet the standards and qualify for an SBA 504 loan.