Learn About SBS 504 Loans
If you are a small business owner in need of funding for real estate or equipment purchases, then you might be interested in what this type of loan can offer you. In this page, we will answer some of the most common questions about SBA 504 loans, including what they are, what they can be used for, how much money you can borrow, how to qualify, and what the repayment terms are.
What is an SBA 504 Loan?
An SBA 504 loan is a type of loan offered by the Small Business Administration to help small businesses buy or improve their commercial real estate or purchase heavy equipment. These loans are designed to help businesses whose needs exceed the limits of traditional bank loans. They work by partnering with a Certified Development Company (CDC) and a third-party lender to provide borrowers with up to 90% financing of their total project cost. The borrower usually contributes a minimum of 10% of the total project cost and the CDC funds up to 40% of the project cost, while the third-party lender funds the remaining amount.
What Can an SBA 504 Loan Be Used for?
SBA 504 loans can be used for a wide variety of purposes, including purchasing or constructing new commercial real estate, renovating or updating existing commercial real estate, purchasing large machinery or equipment, or refinancing debt related to any of these activities. However, there are some restrictions on what types of businesses and projects are eligible for SBA 504 loans.
How Much Money Can I Borrow with an SBA 504 Loan?
The amount of money you can borrow with an SBA 504 loan depends on the size and scope of your project. Generally, SBA 504 loans can fund projects up to $5 million, but there are some exceptions for certain industries and projects where the maximum loan amount can be increased to $5.5 million. The exact amount of your loan will depend on factors like the cost of your project, the appraised value of the property you are purchasing or improving, and the equity you are putting towards the project.
How do I Qualify for an SBA 504 Loan?
To qualify for an SBA 504 loan, your business needs to meet certain eligibility criteria, including having a tangible net worth of less than $15 million and an average net income of less than $5 million during the last two years. You must also operate as a for-profit business, be located and operate in the United States, and can repay the loan. The collateral for your loan will typically be the real estate or equipment being financed.
What are the Repayment Terms for an SBA 504 Loan?
SBA 504 loans offer long repayment terms and low interest rates, making it an attractive funding option for many small businesses. The exact terms of the loan will depend on the size and scope of your project, as well as your financial situation. Typically, SBA 504 loans have a 10 to 25-year term, and the interest rate is a fixed rate determined at the time of the loan. The monthly payments are calculated based on the term and interest rate of the loan, and a portion of the payment goes towards repaying the CDC, the third-party lender, and the SBA.
