SBA 504 Loan Benefits

The SBA 504 loan program requires that a business be for profit, not have a tangible net worth greater than $8.5 million, or an average net income greater than $3 million for the past two reportable years.

This loan is only available to US citizens.  The loan also has these requirements:

  • 51% owner occupancy for the existing building
  • 60% owner occupancy for new construction
  • 10-year economic life on equipment

SBA 504 Loan Advantages:

The SBA 504 loan program has the following advantages over a typical loan program.

  • The down payment required is lower, 10% down is what the business owner must pay. This allows the owner to borrow up to 90% of the total financing need, while preserving cash within the business.
  • The loan offers a below-market, fixed rate. Some lenders will also offer variable rates.
  • SBA 504 loans have longer repayment terms than a traditional loan. Real estate loans can be 20 years fully amortized and equipment loans at 10 years amortized.  This allows for a lower payment.
  • The SBA looks at the projected income of a business in addition to the established cash flow. This can be a great advantage for a rapidly growing business.
  • Since the SBA 504 loan has a guarantee, therefore making the collateral less critical in qualifying for the loan. The collateral is actually the property or equipment that the loan is being used for.
  • Owning commercial real estate instead of leasing typically provides a substantial reduction, sometimes up to 40% on real estate expenses.
  • There are no balloon payments, calls or real estate covenants with many lenders.

Commercial lenders partner with the SBA to administrate this loan program. The lender is responsible for at least 50% of the total cost, while the CDC (Certified Development Company) covers 40%. The borrower is only responsible for the 10% down upfront as mentioned. CDC's are located nationwide, and are a non-profit organization that contributes to the economic development of a community.

SBA 504 loan programs are beneficial to small business owners with assistance in a relatively quick manner once the application has been filed. In today's rocky business climate, the SBA encourages small business start-ups to assist in promoting a positive economy, regardless of the community.