504 Frequently Asked Questions
Click on any of questions below to find your answer:
What is the SBA 504 Loan Program?
How does the SBA 504 Loan Program work?
What can 504 funds be used for?
What can't 504 funds be used for?
What are the terms, interest rates and fees of the 504 loan?
Who is eligible for SBA 504 loans?
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What is the SBA 504 Loan Program?
SBA 504 loans are often referred to as "brick and mortar" financing and are an alternative form of expansion or modernization financing created to provide financing at lower cost for small businesses who wish to grow. SBA 504 loans provide for long-term, fixed-rate financing for small business in need of real estate or machinery or equipment for expansion or modernization.
How does the SBA 504 program work?
Typically a 504 project includes:
- A loan secured from a private-sector lender with a senior lien
- A loan secured from a CDC (funded by a 100 percent SBA guaranteed debenture) with a junior lien covering up to 40 percent of the total cost
- An equity injection of at least 10 percent from the borrower (The maximum SBA debenture generally is $1.5 million and up to $2 million in some cases, $4 million for manufacturing concerns)
- HIDC will participate in projects totalling as little as $200,000.
Often SBA 504 funds are available when other conventional funding sources are not!
What can 504 funds be used for?
- Buying land and/or buildings
- Construction of new buildings
- Purchasing long-term machinery and equipment
- Expanding, renovating or converting an existing facility
- Improvements (including existing buildings, grading, street improvements, utilities, parking lots and landscaping)
What can't 504 funds be used for?
- Working capital
- Purchase of inventory
- Consolidating or repaying debt
- Refinancing
What are the terms, interest rates and fees of the 504 loan?
- Interest rates on 504 loans are pegged to an increment above the current market rate for 10-year U.S. Treasury issues
- Maturities of 10 and 20 years are available
- Fees totaling 2.65% of the debenture are financed with the loan
What about collateral?
Generally, the project's assets being financed are used as collateral. Guarantees of the small business concern and its principal owners are also required.
Who is eligible for SBA 504 loans?
- For profit, small businesses*
- Company must currently do business or propose to do business in the United States or its possessions
*Must fall within the size standard set by the SBA. Under the 504 Program, a business qualifies as small if it does not have a tangible net worth in excess of $7 million and does not have an average net income in excess of $2.5 million (after taxes) for the preceding two years.
Click here for a preliminary application for the 504 Loan Program