The U.S. Small Business Administration (SBA) is a government agency that provides support to entrepreneurs and small business owners. The SBA 504 loan was created to stimulate economic development at the local, state, and national levels, and offers a number of advantages to entrepreneurs looking to start a small business and small business owners looking to expand their operations.
Some of those benefits include:
– Financing: SBA 504 loans offer up to 90% financing, so anyone looking to start or expand a small business only needs to come up with a 10% down payment. Traditional business loans one might find at financial institutions such as banks and credit unions generally require 20% or more for a down payment.
– Terms: SBA 504 loans have terms of 10 years for equipment purchase, and 20 or 25 years for real estate purchase. Again, compared with traditional business loans, this provides a distinct advantage in being able to make smaller monthly payments during the term to dedicate more revenue toward building the business. Another major benefit is that no balloon payments are required as the loan reaches maturity.
– Rates: SBA 504 loans have fixed interest rates and in many cases the rates are lower than what you might find at a bank or credit union. Most traditional business loans come with variable rates that can create problems for businesses that rely on dedicating a set payment amount each month to the loan.
– Size: SBA 504 loans offer a minimum loan of $125,000 and a maximum that can exceed $20 million.
You can use SBA 504 loans for:
– The purchase of existing buildings
– The purchase of land and land improvements, including grading, street improvements, utilities, parking lots, and landscaping
– The construction of new facilities or modernizing, renovating, or converting existing facilities
– The purchase of long-term machinery
– The refinancing of debt in connection with an expansion of the business through new or renovated facilities or equipment
To apply for an SBA 504 loan, contact a Certified Development Company (CDC). These are non-profit corporations that promote economic development through SBA 504 loans. CDCs are certified and regulated by the U.S. Small Business Administration, and work with a variety of lenders to provide financing to small businesses.
CDCs are experts in SBA 504 loans. They can assist borrowers in filling out all of the necessary paperwork, procure funding from lenders, and they act as the intermediary in the loan closing process. A CDC with an Accredited Lenders Program (ALP) designation has increased authority in processing, closing, and servicing SBA 504 loans, and they can expedite the loan process and closing when necessary.
CDCs have defined areas of operation, covering a specific geographic area. To find a CDC, do an online search for “CDC” in the state in which you will be operating the business. For example, “CDC Virginia.” You may also want to include the “ALP” designation in your search to find a CDC that provides a greater level of services.
504 Capital Corporation