The Small Business Administration’s 504 Loan Program is designed to offer alternative ways for small business owners to finance their enterprises, promote business growth and, as a result, create jobs. The program provides approved small businesses with long-term fixed-rate financing that can be used to acquire fixed assets for expansion or modernization. SBA 504 loans are made available through certified development companies (CDCs) like Texas Certified Development Company (TxCDC), which are the SBA’s community- based partners for providing 504 loans.
The simplest way to think about the SBA 504 Loan Program is that it is a way for business owners to get preferable, long-term financing for their business needs by using business assets as collateral that will allow their own bank, in tandem with the CDC, to more readily fund the project and provide optimal terms.
These loans are usually structured with the SBA providing 40 percent of the total project costs, a participating lender such as a bank covering up to 50 percent of the total project costs, and the borrower/owner contributing 10 percent of the total project costs.
This loan program has proven to be a huge success and great benefit to the small business owner, the community and the participating lenders.
For more information and to see if your business qualifies, please refer to the information on this website or contact a TxCDC advisor today at 800-486-8620 or email us: firstname.lastname@example.org.
SBA 504 Loan Benefits
The SBA 504 Loan Program offers several benefits to a small business owner, including:
- Low down payment
- Below-market fixed interest rates
- Long-term financing
- Cost of financing may be included in the loan
- The loan may be assumed if you sell your property.
Uses for SBA 504 Loan
An SBA 504 loan can finance the following:
- Land acquisitions and improvements
- Construction of a new facility
- Purchase/renovation of an existing building
- Purchase of equipment with a useful life of at least 10 years
- Payment of interest/fees on interim financing
- Payment of soft costs related to the project, such as professional fees
Business Eligibility for SBA 504 Loans
- To qualify for an SBA 504 loan, the business must be for-profit with a net worth of less than $7 million. The business also must have a two-year average net profit after taxes of less than $2.5 million.
- The business applicant must be the primary user of the facility with a minimum of 51 percent for an existing facility and 60 percent for new construction.
- The SBA 504 Loan Program requires that one new job be created/retained for every $65,000 provided by TxCDC, unless the business meets other public policy goals.
- Passive investment companies, non-profit businesses, lending institutions, real estate development companies, and some other types of enterprises are not eligible for 504 loans.