Qualifying for the SBA 504 Loan Program

The Small Business Administration has created the SBA 504 Loan Program to help a growing small business. This small business loan is a long term option for fixed assets, such as buildings or land.

504 Loan Requirements

When looking to utilize this type of small business loan, it can only be used for certain things: purchasing land, construction of new facilities, renovating or converting an existing facility, making improvements to grading, street, utilities, parking lots or landscaping relating to those facilities, or purchase of long term machinery and equipments. By no means can the loan be used for inventory, debt repayment, or refinancing.

This nationwide program is available to a variety of industries, but they must meet the following qualifications:

  • operate for profit
  • have a tangible net worth under 7.5 million
  • average net income under 2.5 million after taxes for 2 preceding years
  • satisfactory credit history for all principals or guarantors
  • borrowers must be involved in day-to-day operations
  • proof of adequate cash flow history to cover the proposed small business loan

Additional qualifications must be met depending on the maximum debenture.

  • When meeting job creation criteria or community development goals, the maximum SBA debenture is $1,500,000. One job must be created or retained for every $50,000.00.
  • If the maximum debenture is $2.0 million, then a public policy goal must be met, such as business district revitalization, increasing productivity and competitiveness, restructure due to federally mandated policies, rural development, or expansion of minority or women-owned business.
  • If the business qualifies as a small manufacturer, then the maximum debenture is $4.0 million. This SBA loan also requires that one job is created or retained for every $100,000.

Loan Security

The SBA 504 loan program uses the tangible assets that the project is being financed for as collateral. They also require personal guarantees from the project's principal owners.

This small business loan is also done in partnership with a Certified Development Company (CDC) which is an economic development organization. The CDC provides up to 40% of the financing for commercial real estate purchase and new construction with the SBA 504 loan. A private lender partners with the CDC and provides up to 50% of the financing. The small business owner must contribute at least 10% business equity.

The CDC works with the small business for the process and service of the SBA 504 loan. There are approximately 270 CDC's nationwide, each covering a particular geographic location.