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With the 504, borrowers take advantage of a low interest rate, which is fixed for either 10, 20 or 25 years.
With the 504, borrowers do not have to concern themselves with saving the large amount of cash necessary for a balloon payment. This eliminates the need for refinancing, additional appraisals and deterioration in property values.
Borrowers lock in a low fixed interest rate, which gives them predictable payments and allows them to easily forecast for future years. So there’s no inflationary pressures and interest rate increases to worry about.
The 504 finances total project costs, including not just the costs for land, existing building, hard construction and equipment, but also soft costs like furniture, fixtures, closing costs and professional fees.
In most cases, borrowers can finance up to 90%, which preserves working capital for day-to-day business expenses.
Why rent when you can OWN? The SBA 504 loan program offers fixed asset financing for small businesses at competitive rates and long terms. Even new businesses can buy commercial real estate and equipment, investing in their own company instead of renting and adding to the profits of another business. The low down payment requirement and longer loan terms result in low monthly payments. In many cases, borrowers find that their payments are lower than what they would pay in rent. The low monthly payments can help borrowers qualify for more financing as well.
SBA 504 loans offer up to 90% financing for construction projects, purchasing real estate with existing buildings, machinery, equipment, furniture, fixtures and more. Retaining working capital helps businesses grow and be prepared for unforeseen expenses and inflation.
With the SBA 504 program, terms can go up to 25 years and the interest rate is fixed for the life of the loan. These provide the borrower with years of fixed low monthly payments without tying up working capital.
Lower payments means better cash flow which can help borrowers pay down the bank loan at a higher interest rate faster.
Financing through the SBA 504 program can even be less expensive than other SBA loan programs like 7(a) loans.
Conventional loans typically cover no more than 75% to 80% of project costs which requires higher down payments from the borrower. This reduces the amount of working capital borrowers have right from the start.
Conventional loan terms are typically between 5 and 7 years and almost always include a final balloon payment at maturity. They usually have a rate “floor” as well, not going below a specific rate, regardless of how low rates in general go. Once the short loan term matures, the borrower is subject to rate increases, additional underwriting and possibly tightened credit criteria. If interest rates rise, this is a less favorable option for borrowers. As such, the borrower is at the mercy of the unpredictable rate environment.
Since 1981, Texas Certified Development Company has been an advocate for small businesses and business owners, helping them grow their business through the SBA 504 loan program. As the oldest Certified Development Company (CDC) in Texas and the third largest independent CDC in the nation, TXCDC has a proven success record in helping businesses grow. With Texas CDC by their side, business owners don’t have to navigate the SBA loan process alone.
The SBA 504 program includes financing for start-up or new businesses, construction projects, machinery, equipment, fixtures, furniture, and professional fees. In many cases, borrowers unable to obtain conventional financing can qualify for an SBA 504 loan. Lenders end up with better collateral coverage (loan-to-value ratios) than with conventional lending, making the SBA 504 program attractive to lenders.
| LOAN PROCESS | SBA 504 | CONVENTIONAL |
| Down Payment | As low as 10% ($120k) | Minimum 20%, up to 25% ($240k to $300k) |
| Interest Rate | Fixed for the life of the loan | Subject to multiple rate increases |
| Loan Term | Up to 25 years | Typically 5 years with Balloon |