What is an SBA 504 Loan & How to Get One
The SBA 504 loan is a loan program created to help business owners acquire fixed assets, such as land and buildings, for expansion or modernization. It is a long-term financing solution offered by the U.S. Small Business Administration (SBA). The SBA 504 loan is funded in partnership with approved Certified Development Companies (CDC), which are nonprofit organizations with an economic development mission. The SBA 504 loan provides financing for up to $20 million for the purchase of real estate and/or equipment with a 10- to 25-year repayment period.
How Do You Get an SBA 504 Loan?
To apply for an SBA 504 loan, you must first contact an approved Certified Development Company (CDC) in your area – for Utah, Wasatch Business Finance www.wasatchcdc.com
Wasatch Business Finance will assist with the loan application process, provide technical assistance, and review your eligibility for the loan. You will need to submit a loan application to the CDC and provide supporting documents, such as financial statements and business plans. We will then review your application and forward it to the SBA for approval. The SBA will review your application and decide whether to approve the loan.
How Does an SBA 504 Loan Work?
The SBA 504 loan works in partnership with an approved lender and a Certified Development Company (CDC). The CDC provides up to 40% of the total cost of the project and the lender provides up to 50%. The remaining 10% is provided by the borrower. The borrower is then responsible for repaying the loan over a 10- to 25-year period. The interest rate on the loan is fixed and typically below market rates.
What are the Benefits of an SBA 504 Loan?
The SBA 504 loan offers several benefits to business owners,
• Long-term, fixed-rate financing
• Low down payment requirements
• Low interest rates
• Longer repayment terms
• Flexible terms and conditions
• Potential for job creation and economic development
• Access to capital for businesses with limited resources
How is an SBA 504 Loan Funded?
The SBA 504 loan is funded in partnership with a Certified Development Company (CDC) and an approved lender. The CDC provides up to 40% of the total cost of the project, while the lender provides up to 50%. The remaining 10% is provided by the business owner.
What are the Qualifications for an SBA 504 Loan?
To qualify for an SBA 504 loan, you must meet the following criteria:
• Your business must be a for-profit, operating business.
• Your business must have a tangible net worth of less than $15 million and average net income after taxes of less than $5 million over the last two years.
• Your business must demonstrate a need for the loan proceeds.
• Your business must generate at least 51% of its revenue from operations within the U.S.
• Your business must be able to repay the loan from its own cash flow.
What Are the benefits of an SBA 504 Loan Versus Traditional Financing?
The SBA 504 loan offers a number of benefits that traditional financing cannot provide. These include longer repayment terms, fixed interest rates, and lower down payment requirements. Additionally, the SBA 504 loan can help businesses with limited resources access capital for expansion or modernization. Finally, the 504 loan program can help create jobs and spur economic development in the community.
What Are the Pros and Cons of an SBA 504 Loan?
The pros of an SBA 504 loan include long-term, fixed-rate financing, low down payment requirements, low interest rates, and longer repayment terms. The cons include a more rigorous application process and more stringent eligibility requirements.
How do I get Started?
Contact Wasatch Business Finance at 385-799-6700 or visit www.wasatchcdc.com for more information.