SBA 504 Loans for Small Business

The SBA 504 Loan Program allows small business owners to acquire real estate and business assets with low down payments. You can therefore buy commercial real estate, finance improvements within that real estate and purchase large equipment.

Free Consultation – No Obligation

SBA 504 Loans

What Is a SBA 504 Loan?

An SBA 504 loan is designed to finance long-term fixed assets like commercial real estate and equipment.

You can use an 504 loan to purchase and renovate an existing building, buy land and finance ground-up construction, purchase new equipment, or pay off debt incurred from these purchases.

How Does a SBA 504 Loan Work?

SBA 504 loans are structured differently than other SBA loan programs and it’s important to understand that 504 loans are composed of three distinct parts—the lender, Certified Development Company (CDC) and a borrower. In most cases, SBA 504 loans are structured in a 50-40-10 model. First is the bank loan, which is 50% of the total amount. Second is a Certified Development Company (CDC) who provides 40% of the total loan amount. And third is the borrower who provides a 10% down payment. New businesses that have been in operation for less than two years, as well as special purpose properties, are required to provide an equity amount of 15%, creating a 50-35-15 structure. If you are both a new business AND a special purpose property, the borrower’s equity requirements change to 20%, following a 50-30-20 model.

Example:

Robert is a small business owner who needs $1,000,000 to renovate his current building, as well as upgrade some heavy machinery for his business. His lender provides $500,000 for the first loan, while a CDC provides $400,000 through an SBA-guaranteed debenture and finally, Robert is responsible for the remaining $100,000 as a down payment. Robert will make payments on his 504 loan directly to his lender.

While the eligibility requirements for a 504 loan are nearly the same as for the SBA 7(a) loan program, the approved uses of the loan are different. They fall into three main categories: buying commercial real estate, financing improvements within that real estate and purchasing large equipment. The maximum loan amount can be up to $15 million with maturity rates up to 25 years and low, multi-year fixed interest rates.

How Can I Use My SBA 504 Loan?

Purchasing commercial real estate for your business to occupy so you can improve your cash flow and help build additional equity over time as you take advantage of appreciating property values.

Some typical uses include:

  • Purchase undeveloped property
  • Finance ground-up construction
  • Buy and upgrade existing non-specialized buildings
  • Purchase equipment with a service life of 10+ years
  • Refinance conventional debt

 

Hundreds of industries qualify for SBA 504 financing. Here are some examples:

  • Assisted Living and Skilled Nursing Facilities
  • Restaurants
  • Gas Station/Convenience Store
  • Childcare/Daycare
  • Hotel/Motel
  • Self Storage
  • Commercial Solar

How Can I Qualify For a SBA 504 Loan?

To be eligible for a 504 loan, your business must:

  • Operate as a for-profit company in the United States or its possessions
  • Have a tangible net worth of less than $15 million
  • Have an average net income of less than $5 million after federal income taxes for the two years preceding your application

 

Other general eligibility standards include  falling within SBA size guidelines, having qualified management expertise, a feasible business plan, good character and the ability to repay the loan.

Loans cannot be made to businesses engaged in nonprofit, passive, or speculative activities.

What Are The Advantages of a SBA 504 Loan?

  • Up to $15,000,000
  • Up to 90% loan-to-value
  • Up to 25 years, fully amortizing
  • Loan amount can include additional funds for working capital, property improvements, or other business needs
  • No financial covenants
  • No balloon payments

What Are The Disadvantages of a SBA 504 Loan?

  • While the rates are better than SBA  7(a) loans the turnaround time is longer

Cons

How Do I Apply for an SBA 504 Loan?

Ensure you have a good credit score of 680+ and your cash flow is consistent especially over the past 90 days

Be prepared to discuss in detail the purpose of the funds as we will have to create a sufficiently compelling executive summary

For business acquisitions, we'll need to provide the following:

  • Last THREE years of Personal Tax Returns from the prospective buyer of the business
  • Personal Financial Statement from the prospective buyer of the business
  • Borrower Resume
  • Last THREE years of Business Tax Returns from the business being purchased
  • Year-To-Date Financial Statement (balance sheet and P&L) less than 60 days old from the business being purchased
  • The letter of intent and/or purchase contract for the business acquisition OR an Executive Summary highlighting the total project costs of the business acquisition project being requested.

What If I am Declined for an SBA 504 Loan?

Do not be discouraged. We have other loan products that are more costly, but the turnaround time is significantly faster. Check out our home page for other lending products that might meet your needs or give us a call an we'll offer some suggestions.

What Is an SBA 504 Loan?

An SBA 504 loan is designed to finance long-term fixed assets like commercial real estate and equipment.

 

You can use an 504 loan to purchase and renovate an existing building, buy land and finance ground-up construction, purchase new equipment, or pay off debt incurred from these purchases.

How Does an SBA 504 Loan Work?

SBA 504 loans are structured differently than other SBA loan programs and it’s important to understand that 504 loans are composed of three distinct parts—the lender, Certified Development Company (CDC) and a borrower. In most cases, SBA 504 loans are structured in a 50-40-10 model. First is the bank loan, which is 50% of the total amount. Second is a Certified Development Company (CDC) who provides 40% of the total loan amount. And third is the borrower who provides a 10% down payment. New businesses that have been in operation for less than two years, as well as special purpose properties, are required to provide an equity amount of 15%, creating a 50-35-15 structure. If you are both a new business AND a special purpose property, the borrower’s equity requirements change to 20%, following a 50-30-20 model.

 

Example:

Robert is a small business owner who needs $1,000,000 to renovate his current building, as well as upgrade some heavy machinery for his business. His lender provides $500,000 for the first loan, while a CDC provides $400,000 through an SBA-guaranteed debenture and finally, Robert is responsible for the remaining $100,000 as a down payment. Robert will make payments on his 504 loan directly to his lender.

 

While the eligibility requirements for a 504 loan are nearly the same as for the SBA 7(a) loan program, the approved uses of the loan are different. They fall into three main categories: buying commercial real estate, financing improvements within that real estate and purchasing large equipment. The maximum loan amount can be up to $15 million with maturity rates up to 25 years and low, multi-year fixed interest rates.

How Can I Use My SBA 504 Loan?

Purchasing commercial real estate for your business to occupy so you can improve your cash flow and help build additional equity over time as you take advantage of appreciating property values.

 

Some typical uses include:

  • Purchase undeveloped property
  • Finance ground-up construction
  • Buy and upgrade existing non-specialized buildings
  • Purchase equipment with a service life of 10+ years
  • Refinance conventional debt

 

Hundreds of industries qualify for SBA 504 financing. Here are some examples:

  • Assisted Living and Skilled Nursing Facilities
  • Restaurants
  • Gas Station/Convenience Store
  • Childcare/Daycare
  • Hotel/Motel
  • Self Storage
  • Commercial Solar

How Can I Qualify For an SBA 504 Loan?

To be eligible for a 504 loan, your business must:

  • Operate as a for-profit company in the United States or its possessions
  • Have a tangible net worth of less than $15 million
  • Have an average net income of less than $5 million after federal income taxes for the two years preceding your application

 

Other general eligibility standards include  falling within SBA size guidelines, having qualified management expertise, a feasible business plan, good character and the ability to repay the loan.

 

Loans cannot be made to businesses engaged in nonprofit, passive, or speculative activities.

What Are The Advantages of an SBA 504 Loan?

  • Up to $15,000,000
  • Up to 90% loan-to-value
  • Up to 25 years, fully amortizing
  • Loan amount can include additional funds for working capital, property improvements, or other business needs
  • No financial covenants
  • No balloon payments

What Are The Disadvantages of an SBA 504 Loan?

  • While the rates are better than SBA  7(a) loans the turnaround time is longer

Pros and Cons of SBA 504 Loans

Cons

How Do I Apply for an SBA 504 Loan?

Ensure you have a good credit score of 680+ and your cash flow is consistent especially over the past 90 days

 

Be prepared to discuss in detail the purpose of the funds as we will have to create a sufficiently compelling executive summary

 

For business acquisitions, we’ll need to provide the following:

  • Last THREE years of Personal Tax Returns from the prospective buyer of the business
  • Personal Financial Statement from the prospective buyer of the business
  • Borrower Resume
  • Last THREE years of Business Tax Returns from the business being purchased
  • Year-To-Date Financial Statement (balance sheet and P&L) less than 60 days old from the business being purchased
  • The letter of intent and/or purchase contract for the business acquisition OR an Executive Summary highlighting the total project costs of the business acquisition project being requested.

What If I am Declined for an SBA 504 Loan?

Do not be discouraged. We have other loan products that are more costly, but the turnaround time is significantly faster. Check out our home page for other lending products that might meet your needs or give us a call an we’ll offer some suggestions.

SBA 504 Loan Amount, Rate, Term and Time to Fund

Frequently Asked Questions

How does an SBA 504 Loan compare to other Commercial Real Estate Loan options?

Financing TypeFinancing AmountRateTermTime to Fund
Bridge Loan$500k – $20M10.25% – 15.25%12 months – 3 years2- 4 weeks
CMBS Loan$2M – $100M7.09% – 8.94%5-, 7-, 10-year fixed (25/30 year amortization)30 – 45 days
Construction Loan$50k – $20M10.25% – 11.99%18 months2 – 4 weeks
CPACE Financing$1M – $100M4% – 8%15 – 30 years30 – 45 days
Fix and Flip Loan$50k – $7.5M10.25% – 11.99%12 – 18 months2 – 4 weeks
HUD and FHA Loan$1M – $100M7.18% – 8.125%5-, 7-, 10-year fixed (20 – 30 year amortization)60 – 120 days
Long Term Rental Loan$55k – $5M10.25% – 11.99%5/7/10 year hybrid arms; 30 year amortization2 – 4 weeks
SBA 504 Loan$250k – $5M7.12% – 10.25%10 – 25 years45 – 60 days
USDA Loan$2M – $25M9.75% – 12.5%up to 30 years60 – 90 days
SBA 504 Loan
Financing Amount$250k – $5M
Rate7.12% – 10.25%
Term10 – 25 years
Time to Fund45 – 60 days
Bridge Loan
Financing Amount$500k – $20M
Rate10.25% – 15.25%
Term12 months – 3 years
Time to Fund2- 4 weeks
CMBS Loan
Financing Amount$2M – $100M
Rate7.09% – 8.94%
Term5-, 7-, 10-year fixed (25/30 year amortization)
Time to Fund30 – 45 days
Construction Loan
Financing Amount$50k – $20M
Rate10.25% – 11.99%
Term18 months
Time to Fund2 – 4 weeks
CPACE Financing
Financing Amount$1M – $100M
Rate4% – 8%
Term15 – 30 years
Time to Fund30 – 45 days
Fix and Flip Loan
Financing Amount$50k – $7.5M
Rate10.25% – 11.99%
Term12 – 18 months
Time to Fund2 – 4 weeks
HUD and FHA Loan
Financing Amount$1M – $100M
Rate7.18% – 8.125%
Term5-, 7-, 10-year fixed (20 – 30 year amortization)
Time to Fund60 – 120 days
Long Term Rental Loan
Financing Amount$55k – $5M
Rate10.25% – 11.99%
Term5/7/10 year hybrid arms; 30 year amortization
Time to Fund2 – 4 weeks
USDA Loan
Financing Amount$2M – $25M
Rate9.75% – 12.5%
Termup to 30 years
Time to Fund60 – 90 days

Ready to take the next step and apply for an SBA 504 Loan?

Free Consultation – No Obligation

Give us a call to see how we can help your business