The Small Business Administration (SBA) 504 Loan is available to eligible small business owners who wish to purchase equipment to expand their business. It’s also available to those interested in renovating or purchasing a piece of commercial real estate. The current interest rates are similar to favorable rates in the bond market. SBA loans also level the playing field between small and large businesses when it comes to securing a long-term loan with a low-interest rate and fixed-rate financing.
Under the eligibility criteria for 504 SBA Loans, a small business is one that has a net worth of seven million dollars or less and an annual profit of no more than 2.5 million dollars. The type of business does not matter for application purposes. The applicant will also need to have an excellent credit rating and produce all financial documentation required by the SBA.
How You Can Use Funds from 504 SBA Loans
The SBA allows recipients of this loan to use it to purchase fixed business assets. These include:
- Construction of new facilities
- Land and land improvements, including for owner-occupied buildings
- Modernization or renovation of existing facilities
- New facility construction
- Parking lots
- Purchase of major equipment expected to last 10 or more years
- Street improvements
If approved for 504 SBA Loans, you can also include soft costs such as appraisals, architecture and legal fees, interest on construction fees, and environmental studies into the larger loan. However, you will need to apply for a separate SBA program if you’re interested in debt consolidation, purchase of additional inventory, working capital, or refinancing.
Common Terms for 504 SBA Loans
The loan typically requires 10 percent down. Of the remaining 90 percent, a private-sector lender funds half of it while the SBA funds the other half. You may have up to 10 years to pay the loan off in full.
Would you like to learn more about SBA loans before applying? Schedule a personal consultation with a financial counselor at Rotay Capital Finance today.