What is an SBA 504 Loan?
Also called SBA CDC/504 loan, it is one of the most sought-after funding options for small business owners guaranteed by the U.S Small Business Administration. Whether you’re planning to purchase real estate, equipment, and other fixed-assets, choosing an SBA 504 loan could be the perfect solution.
Unlike other types of SBA loans, this small business financing is issued by two parties. 50% of the working capital is provided by the bank and 40% of the funding is provided by an SBA-approved certified development company (CDC). The remaining 10% of the loan amount is provided by the borrowers, generally in the form of a cash down payment.
Features of SBA 504 Loans
Loan Amount
Generally crapped at $5 million on CDC portion, however, certain eligible projects may qualify for $5.5 million.
Interest Rate
Generally between 3 % to 6%, but can vary from lender to lender.
Repayment Terms
10, 20, or 25 years.
Uses
Can be used to purchase major fixed assets like building, land, equipment, and machinery.
Down Payment
Generally, 10% of the total funding.
Time to Funding
At least one to three months.
Fees
Vary, can include bank, SBA, and CDC fees.
Collateral
Generally, project assets are used as collateral; personal guarantees for business owners of 20% or more are required.
Qualification Requirements of an SBA 504 Loan
To be eligible for an SBA 504 loan, your business must be profitable and fall within the size standards set by Small Business Administration. You can qualify if you’re going to use funds for one of the following business purposes.
- Purchasing equipment or machinery
- Purchasing land or existing building
- Building new facilities
- Refinancing existing debt
- Renovating existing facilities
Once you have successfully met the eligibility criteria set by the SBA, you’ll need to meet the following general requirements as well.
- Have more than 650 credit score
- Meet job creation or public policy goals
- Real estate must be at least 51% owner-occupied
- Must invest some of your own money into your business
- Show that you have good character
- Not be delinquent on other government loans
How to Apply for an SBA 504 Loan?
For now, if you have decided to secure an SBA 504 loan for your small business, you’ll need to find a lender to start the application process. When searching for lenders, you’ll find many national, regional, and communicate banks that can provide you SBA 504 loans.
The first and foremost step is to ask your existing lender with whom you have a good relationship if they also provide SBA 504 loans. In case your lender doesn’t provide this small business financing, or simply you want to explore and compare other options, you can refer to other banks or use an online funding marketplace. This way you can find and compare a variety of SBA 504 loan offers to choose the best option to meet your current financial needs and budget.
Once you find the lender who is willing to work with you, you can ask them to recommend a CDC to complete your loan application. You can explore SBA’s official website to find numerous Certified Development Companies near you.
That being said, you’ll need to find both a bank and CDC to start your loan application. Remember, the loan application process of an SBA 504 loan program is typically complicated and lengthy, and you may have to wait from a few weeks to months for your loan application to be processed and approved.
Documents Needed to Apply for an SBA 504 Loan
Following are some of the many common document requirements to apply for an SBA 504 loan.
- Business plan
- Personal and business tax returns
- Bank statements
- Collateral
- Personal guarantee
- Business financial documents
- Business debt schedule
- Legal documents
Therefore, it is always a great idea to be ready and gather all the necessary documents in advance and keep regular communication with the bank and the CDC. It helps you make your loan application process easier and get the funds as soon as possible.
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