SBA 504 Loan

For the motivated small business owner looking to purchase fixed assets between $50,000 and $1,500,000, an SBA 504 loan may be the right choice.

This loan is only available for businesses falling under the SBA's definition of a small business (in this case net worth under $7 million, and net revenue for the past two years of less than $2.5 million).

An SBA 504 loan is a loan in which a private lender (a bank usually) recommends a loan candidate for government money through the SBA (Small Business Administration). Generally speaking, the private lender will recommend candidates who fulfill the application requirements and who are looking to purchase fixed assets. These assets may include purchasing land and making improvements, buying long-term equipment and machinery, making street improvements and building parking lots, and renovating or converting existing facilities.

While 50% of the 504 loan is funded by the private lender, 40% comes from a CDC (Certified Development Company) and 10% is produced by the borrower. In addition to this, personal guarantees are required from the principal borrowers, along with financial records for both the company and the borrowers. A further condition for an SBA 504 loan is that it must create or retain a job for every $50,000 of money borrowed.

Collateral is generally the equipment and project assets purchased are used as collateral.

An SBA 504 loan has fees attached to it usually amounting to 3% of the loan, which can be paid off using the loan itself. The interest rate is tied to an increment above the rate of current 5 and 10 year treasury bonds.

In some cases it may be possible to receive more than $1,500,000, by tailoring your business plan to meet a public policy goal in your community. These goals may include:

• increasing exports
• revitalizing a business district
• changes necessitated by governmental policy shifts

In addition, this benefit is also made available to certain businesses owned by veterans (especially service-disabled veterans) and women.

If your business meets one of these criteria, it may be possible to increase the loan amount to $2,000,000.

If your business falls under classifications 31, 32, and 33 of the North American Industrial Classification system, and all of its production facilities are located in the United States, then the debenture (amount of loan) may be increased to $4,000,000. In this case one job must be retained or created for every $100,000 of the loan.

These loans can be quite difficult to obtain, both in terms of time and in terms of administrative and secretarial work. It is important to note that although the SBA is guaranteeing the money in this case, the money is given by CDC's (Certified Development Companies) that are interested in business plans that meet some community goals.

These CDC's are located around the USA, with over 270 different sites. Unfortunately, if your business does is not located in one of these areas, then your business goal may not correspond with their goals for community development, and you may be denied such a loan.