The SBA 504 loan program, also called the Certified Development Company program, is designed to provide assistance for business owners with very specific requirements. This is not a general loan that can be used for whatever a business needs, nor is it designed for new companies that need startup capital. Instead, the 504 loan is designed to help businesses in need of purchasing fixed assets. These are generally things like real estate and equipment, but can also be fixtures, new buildings, machinery and the like. The loan is also designed to allow those purchases at below market rates.

The SBA explains it this way: “The SBA 504 loan program is a powerful economic development loan program that offers small businesses another avenue for business financing, while promoting business growth, and job creation … The 504 loan program provides small businesses with long-term, fixed-rate financing used to acquire fixed assets for expansion or modernization. 504 loans are made available through Certified Development Companies (CDCs), SBA’s community-based partners for providing 504 loans.”

Usually, funding comes as a partnership between a private lender, a nonprofit Certified Development Company (CDC), and the business. The CDC typically puts in 40% of the project cost, while the private lender funds 50% and the business 10%. The SBA backs the CDC portion of the loan, reducing risk for lenders who put up half the cost of the project. In the case of default, under the SBA 504, the private lender has first lien on project assets.

Unlike SBA 7(a), which may be used for various business purposes, SBA 504 financing is restricted to land purchase, renovations, and long-term use equipment and machinery. SBA 504 financing is long term and fully amortized without a balloon payment. Terms for SBA 504 financing are typically 10, 15, or 20 years. SBA 504 loans typically have lower interest rates and lower down payment requirements than 7(a) loans and express loans, but they require a higher credit score and very strong borrower financials.

The SBA 504 loan program offers several benefits to businesses, including long-term, fixed-rate financing, lower interest rates and down payment requirements than SBA 7(a) loans and Express loans, and the ability to purchase fixed assets such as real estate and equipment. The loan is also backed by the SBA, reducing risk for lenders who put up half the cost of the project. In the case of default, the private lender has first lien on project assets. Terms for SBA 504 financing are typically 10, 15, or 20 years, and the loan is fully amortized without a balloon payment.

For more information, please visit the following sources:

• SBA 504
• Private Lender
• Certified Development Company
• SBA 504 Loan
• Interest Rates
• Down Payment
• SBA 504 Loans vs 7(a) Loans
• Small Business Administration

In order to take out an SBA 504 loan, your business must meet the following eligibility requirements:

• Your business must be a for-profit organization.
• Your business must meet current SBA size standards.
• Your business’ net worth cannot exceed $15 million.
• Your business cannot earn 1/3 or more of its income from packaging SBA loans.
• Your business must earn an average of $5 million or less per year (after taxes, and only for the preceding two years).
• Your business cannot be engaged in any sort of passive or speculative activities.

Note that additional requirements may be placed by CDCs or conventional lenders. You can find a full list of eligibility requirements and other important information with the SBA here.

The SBA 504 maximum loan amount is currently set at $5 million in lifetime dollars. However, if your business is a small manufacturer, you can borrow up to $5.5 million in lifetime dollars. It should also be noted that if you decide to embark on energy-related projects that fall under the “go green” heading, you can borrow substantially more. While all projects are capped at $5 million, you can ultimately borrow up to $16.5 million in lifetime dollars.

Source: https://sba504.loans/sba-504-blog/what-is-the-sba-504-maximum-loan-amount

The repayment terms for an SBA 504 loan are 10 to 20 years (fully amortizing). The interest rates vary, but the current maximum interest rates for the CDC portion of an SBA 504 loan are between 2.08 and 2.18% above the relevant U.S. Treasury Index (5-year index is used for 10-year loans, while the 10-year index is used for 20-year loans).

For more information, please visit www.commercialrealestate.loans/sba-504-loan and sba504.loans/loan-requirements.