The Small Business Administration (SBA) 504 loan is part of a government small business program to help put your own business goals within reach. The SBA is a U.S. government body, with the motive of providing support for small businesses and entrepreneurs. For each loan authorized, a government-backed guarantee offers serious credibility, since the lender knows that even if you default, the government will pay off the balance. The 504 loan offers a fixed-rate and long-term financing. These loans are great for applicants whose business model will benefit their community directly, either by providing jobs or bringing needed services to an underserved area. For many small businesses, it is beneficial because this is money and capital that may not be accessible through traditional loans.
Total projects can be over $12 million and even larger for manufacturers.
- The SBA’s portion of the project, however, is capped at $5 million (or $5.5 million for manufacturers).
- Nonetheless you can see that even though the “S” in SBA stands for “small,” this loan program can fund some large sized projects!
Less money out of pocket.
- The SBA 504 loan does require equity from the borrower, but it can be as little as 10 percent.
- Less money put into the building or equipment purchase means more money on the company’s balance sheet or on the owner’s personal financial statement.
- Businesses that are start-up in nature or properties that are special purpose require greater equity.
Interest rates fixed for the life of the loan!
- The term and rate of the loan is either 10, 20 years or 25 years. (It depends on the project.)
Depending on the appraised value:
- No further collateral beyond the subject property or equipment is required.
- Many fees and costs can be wrapped into the total project.