The SBA 504 Loan program provides small businesses with long-term, fixed-rate financing to acquire major fixed assets for expansion or modernization. These are high-value loan types that are used to purchase large fixed assets and finance capital projects that would otherwise be unaffordable to business owners since an SBA 504 loan usually covers about 15 percent of the project’s total soft costs, such as appraisals, title insurance, survey property inspections, etc. This is probably the loan for you if you own or occupy real estate.
SBA 504 program provides SBA loans to small businesses looking to purchase or build owner-occupied commercial real estate. The program pairs two lenders together to fund these projects: a bank or traditional lender and a community development corporation (CDC). The bank lends up to 50%, the CDC lends up to 40%, and the remaining 10% of the project’s costs come from the borrower, typically in the form of a cash down payment. CDC/SBA 504 loans require that the business occupy at least 51% of the commercial space. While this is a great opportunity to rent out 49% of your new building to tenants, this type of SBA loan is only suitable for companies that actually expect to occupy the space themselves.
Purpose: Purchasing owner-occupied commercial real estate.
Eligibility: Most for-profit business is eligible for financing. Commercial real-estate must be 51% or greater owner occupied.
Use of Proceeds:
Real-estate acquisition, construction, or refinance - up to 90% financing available
Equipment Acquisition - up to 80% financing available
First Mortgage – up to 25-year term for real-estate loan and up to 15-year term for equipment purchase.
Second Mortgage – up to 20-year term for real-estate and up to 15-year term for equipment purchase.
Additional SBA Requirements:
You’ll need to be able to show that you were unable to obtain credit elsewhere and that you are not engaged in investment rental real estate. Additionally, you must meet the following criteria:
Business net worth: Have a tangible net worth less than $15 million.
Repayment ability: Be able to repay the loan on time from the projected operating cash flow of the business.
Building occupancy: Building must be at least 51% owner-occupied.