Starting, maintaining, and growing a business is a lot to take on and equipment and real estate can be a major hurtle when it comes to business expenses. Fortunately, there are loans available to help ensure you have the funds you need to be successful. We’ve created this guide to help you understand how an SBA 504 loan can help you!
What is an SBA 504 Loan?
The Small Business Administration (SBA) backs the funds and enables lenders to provide 504 loans. The SBA works with Certified Development Companies (CDCs), non-profit organizations created to promote economic development in communities. 504 loans are offered through these organizations to help promote business growth and job creation.
How to Qualify
When you apply for a 504 loan, you’ll need to fill out and submit documentation as part of a 504 loan authorization packet. These documents will be reviewed, along with your credit, to ensure your eligibility.
In order to qualify and be eligible for a 504 loan, your business must:
Operate in the United States
Be a for-profit company
Have a tangible net worth of less than $15 million
Have an average net income of less than $5 million after taxes for the previous two years
504 loans offer long-term financing, fixed interest rates, and a lower down payment requirement than most other financing options – typically 10%, but some may require up to 20% depending on the circumstances. The maximum amount that a business can borrow is $5 million. There are several options for repayment terms, which include 10, 20, and 25 years.
Using a 504 Loan
If you’re looking to finance equipment or buildings for your business, an SBA loan can be a great resource to utilize as you work to make your business grow. The funds from this loan can be used to purchase commercial real estate, long-term machinery and equipment, and for the construction of new facilities. They can also be utilized to improve the current land, landscaping, utilities, and existing facilities of the business. It is important to note that a 504 loan cannot be used for working capital or inventory, consolidating, repaying, or refinancing debt, or for investment in rental real estate.
We have a great example of how financing a building can you your business dream a reality! Davis Custom Meat Cutting is a multigenerational business that uses their business to serve our local community. See how they’ve done it!