SBA 504 Loan -

Small Business Loan For New Business

What is an SBA 504 Loan ?

An SBA 504 loan, also known as a CDC/504 loan, is a financing option for small businesses provided by Certified Development Companies (CDCs) and third-party lenders, with backing from the U.S. Small Business Administration (SBA). These loans are intended to facilitate business growth and job creation by facilitating the acquisition or improvement of significant fixed assets.

SBA 504 Loan Calculator :

SBA 504 Loan Calculator

SBA 504 Loan programe

Here’s what an SBA-504 loan can typically be used for:

Purchase of Assets: This includes buying land, real estate properties, equipment, machinery, furniture, or fixtures necessary for business operations.
Construction or Upgrades: Funds from an SBA-504 loan can be utilized for constructing new facilities or upgrading existing ones, which may involve infrastructure improvements such as utilities, streets, or parking lots.
Debt Refinancing or Ownership Changes: In specific circumstances, businesses can use SBA 504 loans to refinance existing debt or facilitate changes in ownership structure within the business.

However, there are certain restrictions on the use of SBA 504 loans:

Working Capital: These loans cannot be utilized for day-to-day operational expenses or to cover working capital needs.
Inventory Purchase: Funds from an SBA-504 loan cannot be used to purchase inventory or stock for the business.
Real Estate Investment: SBA-504 loans are not intended for speculative real estate investment purposes.

By understanding these guidelines, businesses can effectively leverage SBA 504 loans to support their growth initiatives while adhering to the loan’s intended use.

SBA 504 loan Requirements

SBA 504 Loan Requirements

To qualify for an SBA-504 loan, you’ll need to meet general SBA loan requirements, criteria specific to the 504 loan program, as well as any additional requirements from your lender.

Standard SBA loan requirements include:

Must be a for-profit business operating in the U.S.
Must be a small business, as defined by the SBA.
Must have sought out other forms of financing before turning to an SBA loan.
Must be able to demonstrate the need for a loan and show the business purpose for which you’ll use the funds.
Cannot be delinquent on any government loans, including federal student loans.
Must be able to show your ability to repay the loan.

SBA 504 loan requirements include:

Net worth of less than $15 million.
Average net income of less than $5 million for the two years prior to the application.
You must be financing a major fixed asset purchase, upgrade, or other eligible use case.
Your project must create or continue a certain number of jobs or meet other public policy goals.
Nonprofit organizations, life insurance companies, private clubs, and businesses that primarily engage in lending, lobbying, or legal gambling are not eligible to receive an SBA 504 loan.

Your CDC and bank lender will have specific criteria that you’ll need to meet as well. These criteria can vary, but lenders will generally want to see good credit and strong revenue.

SBA 504 Rate :

Feature	Details
Loan Amount	$25,000 to $5 million. Energy public policy projects and small manufacturers may qualify for up to $5.5 million.
Repayment Terms	10, 20, or 25 years, based on the remaining useful life of the financed property.
Interest Rates	Tied to the 10-year U.S. Treasury notes, typically around 5% to 7% of the financed amount.
Collateral	The financed equipment or property serves as collateral. Additional collateral may be required in some cases.
Fees	Fees include SBA, CDC, and bank or credit union fees, which vary. Fees are rolled into the total loan amount.so a business owner’s only upfront cost is the 10% down payment.Additionally, borrowers may be required to pay closing costs.
Funding Speed	Varies but typically ranges between 30 and 90 days.
Insurance	Hazard insurance on the financed property is required. Borrowers must sign a personal guarantee committing to repay the debt in case of default.

SBA 504 Loan Qualifications :

To qualify for an SBA-504 loan, you need to meet specific qualifications set by the Small Business Administration (SBA) and participating lenders. These qualifications include:

For-Profit Status: Your business must operate as a for-profit entity within the United States.
Size Requirements: Your business must meet the SBA’s definition of a small business, which typically varies by industry and is based on factors such as number of employees or annual revenue.
Seeking Other Financing: You must demonstrate that you have sought financing from other sources before applying for an SBA 504 loan.
Need and Purpose: You must be able to justify the need for the loan and provide a clear business purpose for the funds.
Financial Responsibility: You must not be delinquent on any government loans, including federal student loans, and you must demonstrate your ability to repay the loan.
Net Worth and Income Limits: Your business’s net worth must be less than $15 million, and your average net income over the past two years must be less than $5 million.
Project Requirements: The loan must be used to finance a major fixed asset purchase, upgrade, or other eligible use case. Your project must also create or retain a certain number of jobs or meet other public policy goals.
Ineligibility: Nonprofit organizations, life insurance companies, private clubs, and businesses primarily engaged in lending, lobbying, or legal gambling are not eligible for SBA 504 loans.

Additionally, each Certified Development Company (CDC) and bank lender may have specific criteria and requirements you need to meet.

SBA 504 Loan Vs SBA 7a Loan:

Aspect	SBA 504 Loan	SBA 7(a) Loan
Amount	Maximum of $5.5 million	Maximum of $5 million
Eligibility	For-profit businesses, net worth < $15M, meet net income requirements	For-profit businesses, operate in U.S., owner equity, exhaust other financial resources
Terms	10, 20, and 25 years	10 years for working capital or inventory, 10 years for equipment, 25 years for real estate
Interest Rates	Tied to five- and 10-year U.S. Treasury issues	Negotiated by borrowers and lenders
Fees	Various	Vary depending on loan size
Collateral	Project assets being financed	Required for loans of $25,000 and up
Uses	Purchase, construction, or improvement of buildings, land, new facilities, and machinery and equipment	Working capital, real estate, equipment, construction, establishing a new business, inventory, and refinancing business debt

This table provides a clear comparison between the SBA-504 Loan and SBA 7(a) Loan based on various aspects such as loan amount, eligibility, terms, interest rates, fees, collateral requirements, and uses.

steps to get an SBA 504 loan:

Find a lender:

Locate a Certified Development Company (CDC), which are nonprofit economic development organizations authorized to process SBA 504 loan applications.
The CDC will guide you through the process, assess your eligibility, and connect you with a third-party lender.
You can find a list of CDCs on the SBA’s website.

Gather project information:

Collect details about the major fixed asset you intend to purchase or upgrade.
Obtain quotes from vendors or calculate project costs to determine financing needs and down payment requirements.
Ensure that your project aligns with SBA 504 loan requirements.

Complete SBA 504 loan application:

Prepare extensive documentation as required by your CDC and lender.
Specifics of the application process may vary, but expect to provide detailed information about your business, finances, and the intended project.
Typical documentation includes financial statements, business plans, tax returns, and project cost estimates.
Completing these steps will set you on the path to securing an SBA 504 loan for your business needs.

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