What is SBA?
The U.S. Small Business Administration (SBA) was created in 1953 as an independent agency of the federal government to aid, counsel, assist and protect the interests of small business concerns, to preserve free competitive enterprise and to maintain and strengthen the overall economy of our nation. Small businesses are critical to America’s economic recovery and strength, to building America’s future, and to helping the United States compete in today’s global marketplace. Although SBA has grown and evolved in the years since it was established in 1953, the bottom line mission remains the same. The SBA helps Americans start, build and grow businesses. Through an extensive network of field offices and partnerships with public and private organizations, SBA delivers its services to people throughout the United States, Puerto Rico, the U. S. Virgin Islands and Guam. Learn more: https://www.sba.gov/
What is an SBA 504 Loan?
Am I eligible for the 504 Loan?
To be eligible, the business must be operated for profit and fall within the size standards set by the SBA. Under the 504 Program, the business qualifies as small if it, along with its affiliates, do not have a combined tangible net worth in excess of $15 million and do not have a combined average net income in excess of $5 million after taxes for the preceding two years. Also, loans cannot be made to businesses engaged in speculation or investment in rental real estate. Some other businesses are ineligible. Please contact one of our team members to determine the entire eligibility of your business.
Complete our checklist to see if your small business is eligible.
How much can I borrow under the SBA 504 Loan Program?
The maximum you can borrow from SBA is $5,000,000. However, special circumstances allow an increase to $5,500,000, such as loans to manufacturers or loans that improve energy consumption and fall under the Energy Loan Program.
How long do I need to be in business to get this loan?
Loans can be made to a small business, whether it is a start-up or an existing business. Although, a start-up business requires an additional down payment of 5% of the project costs. Start-up businesses will require a business plan and reasonable projected financial statements. Here are resources to assist you with these projections.
What is a CDC?
What can I use the proceeds for?
Proceeds from 504 loans must be used for fixed asset projects such as: purchasing land and improvements, including existing buildings, architectural and engineering plans, grading, street improvements, utilities, parking lots and landscaping; construction of new facilities, or modernizing, renovating or converting existing facilities; or purchasing long-term machinery and equipment. The program can also be used to refinance existing commercial loans whose proceeds were used for eligible 504 project costs.
Working capital, inventory, or intangibles, such as goodwill, cannot be used for the 504 Program.
Can my real estate holding company own the building?
Does my business have to occupy all of the building?
How is an SBA 504 project financed?
An SBA 504 project has three main components: A third party lender who provides 50% or more of the financing, a Certified Development Company (CDC) who provides up to 40% of the financing, and the applicant (borrower) who provides at least 10% of the financing.
If the borrower is a start-up business (generating revenue less than 2 years) or the property is a special use property then the applicant’s share of the project increases to 15% and the CDC’s decreases to 35%. If both of the above are true, start-up and special use, then the applicant’s share would increase to 20% and the CDC’s reduced to 30%. Furthermore, if the borrower has an outstanding debenture on a special purpose property, then the applicant’s share increases to a minimum of 20%.
What is a special use property?
Businesses with a Limited or Special Purpose Property must contribute at least 15%.
For any business with (including affiliates) that has an outstanding debenture for a Project involving a Limited or Special Purpose Property, for each subsequent Project involving a Limited or Special Purpose Property, the borrower must contribute 20%.
Below is a list that contains examples of properties that SBA considers to be a Limited or Special Purpose Property. This list is not intended to be all-inclusive and SBA may determine that other properties meet the Limited or Special Purpose Property definition.
i) Amusement parks;
ii) Bowling alleys;
iii) Car wash businesses;
v) Cold storage facilities where more than 50% of the total square footage is equipped for refrigeration;
vii) Farms, including livestock and dairy facilities;
viii) Funeral homes with crematoriums;
ix) Gas stations;
x) Golf courses;
xi) Hospitals, surgery centers, urgent care centers and other health or medical facilities;
xii) Hotels, motels, and other lodging facilities;
xv) Nursing homes, including assisted living facilities;
xvi) Oil wells;
xvii) Quarries, including gravel pits;
xix) Sanitary landfills;
xx) Service centers (e.g., oil and lube, brake or transmission centers) with pits and in-ground lifts;
xxi) Sports arenas;
xxii) Swimming pools;
xxiii) Tennis clubs;
xxiv) Theaters; and
Must the applicant's equity contribution be in cash?
Can the Borrower's contribution be borrowed?
Are all franchises eligible for SBA financing?
SBA requires review of a franchise agreement, license agreement, membership agreement, co-op agreement, dealer agreement, jobber, or similar agreement to determine if an affiliation exists that would disqualify the applicant from the program.
Does the small business need to create jobs?
The SBA 504 loan program has economic development objectives to create or retain at least 1 job per every $90,000 (or per every $140,000 for manufacturing and energy projects) of project debenture. However, this requirement can be waived under certain community or public policy goals. Please contact one of our knowledgeable business development officers for a list of these policy goals.