At some point in your company’s growth, the need may arise to purchase real estate, machinery, or various types of equipment. One financing option to help you accomplish this is a loan from the U.S. Small Business Administration. Here is some information about SBA 504 loans to assist you in determining if this solution meets your funding needs.
SBA 504 Loan Basics
SBA 504 loans are government-backed loans specifically designated for real estate or equipment purchases. Because they are provided by Certified Development Companies, they are also sometimes referred to as CDC/504 loans. The maximum you can borrow is generally $5 to $5.5 million. The repayment period may be as long as 25 years. Funding for the business need is shared between the CDC, a bank or credit union, and the small business owner acquiring the loan. With the business owner expected to contribute 10 to 20 percent.
Qualifying for an SBA 504 Loan
To qualify for an SBA 504 loan, your company must be a U.S.-based for-profit business whose net worth is under $15 million. As the owner, you must have a high personal credit rating. You must be up to date on any other loan payments, and your company must meet the general SBA criteria for a small business.
Applying for an SBA 504 Loan
The first step in applying for an SBA 504 loan is to locate a Certified Development Company with which you can work. You will need considerable documentation, including your company’s business plan, three years of personal and business tax records, personal and business financial statements, and estimates of the cost of the real estate or equipment your company needs. The CDC assists you by processing your application and submitting it to the SBA. Closing may take a month or longer, depending on the cost and complexity of your proposed purchases.
How to Use an SBA 504 Loan
The SBA stipulates that you can use 504 loans to purchase fixed assets such as real estate, machinery, or equipment. The loan can also be used to upgrade or construct facilities such as parking lots, streets, and utilities. You cannot use 504 loans for repaying debt, renting real estate, obtaining inventory, or other general business needs.
For more advice on SBA 504 loans, contact Progressive Capital Funding.