>>SOLUTIONS

SBA 504 Loan Program

The SBA 504 Loan Program is designed for successful growing companies, but well-structured startups may also qualify. This program is intended to contribute to the economic development of a community. The SBA, through Certified Development Companies (CDC), works with private-sector lenders to provide financing to small businesses. A loan from a private-sector lender covers 50% percent of the project. A CDC debenture covers another 40%, thus providing the borrower with a combined 90% LTV (loan-to-value).

The criteria that apply to the SBA 7(a) Loan Program also apply to this program; however, additional criteria must also be met:

	The business, plus affiliate companies, must have a tangible net worth of less than $6 million, or an average net profit after taxes of less than $2 million for the
	One new job must be created (or retained) for every $35,000 of the 504 net debenture funds

This program offers long-term financing for major fixed asset projects, including:

	Purchase land and improvements (existing buildings)
	Building construction, expansion, conversion or remodeling
	Long-term machinery & equipment
	The 504 Program cannot be used for working capital, consolidating debt, or purchasing another business

Businesses favor this program because it offers:

	Low down payment (as little as 10%)
	Favorable fixed rates for 10 or 20 years on the CDC's portion of the project
	Long term financing at favorable rates on the bank's portion of the project

The maximum amount the SBA can contribute to a single company is $1,000,000 ($1,300,000 if certain SBA objectives are met). The SBA cannot exceed 40% of the total project costs.

Projects up to $2.5 million can efficiently be financed through the SBA 504 loan program. However, IFS can arrange financing of projects costing up to $5 million.

Under the SBA 504 guidelines the term for real estate loans is up to 20 years, and up to 10 years for machinery and equipment.

SBA loans can only be used to finance owner-occupied properties. Thus, when purchasing existing buildings, the small business must occupy at least 51 percent of a structure. For new construction, the small business must occupy 60 percent of the structure initially (with plans to occupy at least 20 percent more within 3 to 10 years).

Click here to learn about the SBA 7(a) Loan Program.
Click here to return to the main SBA web page.

© 2003 Inspired Financial Solutions