| The U.S. Small Business Administration 504 Loan Program is designed to promote local economic development. It helps growing businesses finance the acquisition of long-term fixed assets, such as land, building, machinery and equipment as well as the construction, modernization, renovation or restoration of facilities. These assets must be used primarily to enable the business to create or retain jobs or meet other eligibility requirements as established by the SBA. |
Why Small Businesses Choose 504 Financing For Their Expansion Needs Growing businesses have big plans, big ideas and big needs. When a conventional loan is not an option, a 504 loan may be an alternative. Administered by the Business Finance Center of Tulare County, the SBA 504 loan program gives small business owners access to the same low-cost, fixed-rate, long-term financing that large businesses find in bond markets. Entity | Loan Amount | % of Project | Security | | Lender | $500,000 | 50 | 1st DOT | | SBA/CDC | $400,000+fee | 40 | 2nd DOT | | Borrower | $100,000 | 10* | | | Total | $1,000,000 | 100 | | * Note: Equity of 15-20% will be required for start-ups and businesses or single purpose properties. Project Size Financed A BFC financed project can be any size; SBA-debentured financing is limited to a maximum of 40% of a project or $1,000,000 (whichever is less). The minimum debenture is $50,000 (there is no limit to a project size). Some projects may qualify for $1,300,000 in areas that meet a Public Policy goal or are located in a federally designated Labor Surplus Area. | | Private Lender | 504 Financing | Equity | | % of Project | 50% | 40% | 10% | | Security Positions | First Lien Position | Second Lien Position | | | $ Amount Limits | No Limit | $50,000 - 1.3 Million | | | Real Estate Terms | 10+ years | 20 years fixed | | | Equipment Terms | 7 years | 10 years | | Use of Proceeds Loan proceeds generally may be used for the following fixed-asset projects: - Purchasing land or existing buildings and making improvements such as grading, utilities, parking lots and landscaping;
- Constructing, modernizing, renovating or converting existing facilities; and
- Purchasing machinery and equipment that has a useful life of 10 years or more.
Terms Interest rates are based on the current market rate of five-year U.S. Treasury issues, plus an amount slightly above the Treasury rates. Maturities of 10 and 20 years are available. Repayment is made in monthly, fixed installments. Collateral will usually include a mortgage on the land and buildings being financed; liens on machinery, equipment and fixtures; lease assignments and other assets. Private-sector lenders are secured by a first lien on the project. The SBA is secured by a second lien and if needed, additional collateral. The agency also requires personal guarantees from those who own 20 percent or more of the company and keyman life insurance. Eligibility An eligible business must be a for-profit corporation, partnership or proprietorship which is independently owned and not dominant in its field with a net worth (including affiliates) of $7 million or less. Average net profits after taxes cannot exceed $2.5 million per year for the previous two years. |
