If you are a small business owner or a real estate investor looking to finance your business, getting funds will often be a point of concern. Fortunately, SBA 504 loans are designed to help new companies get finances for expanding, purchasing commercial real estate, and making capital improvements. Below, we discuss what SBA loans are all about, how they work, and the eligibility requirements.
Defining SBA 504 Loans
SBA 504 loans refer to long-term loans issued through the Certified Development Company and third-party lenders. They are also regulated by the Small Business Administration, which also oversees their issuance.
How SBA 504 Loans Work
SBA loans utilize a specialized loan structure for funding which comprises the following:
Up to 50% bank loan as a conventional first mortgage
Up to 40% as a CDC loan conveyed as a second mortgage which is backed by the SBA
10%-20% down payment by the business owner or borrower in question
Funding for SBA 504 loans begins at $125,000 and will often be capped at $5 million. Projects in the energy sector may, however, get more than $5 million, with some businesses receiving up to $5.5 million or more.
How SBA 504 Loans Are Used
A few areas that SBA loans are used in include:
Working capital for revolving credit, seasonal financing, refinancing business debt, and export loans.
Funding fixed assets such as leasehold improvements, machinery, ground-up construction, and expansion or renovation costs.
Eligibility Requirements for SBA 504 Loans
Since SBA loans are designed to promote job creation and economic growth, only for-profit companies that operate within the United States are eligible for this loan. Applicants must also have equity in the company or have invested interest while proving how the SBA 504 loans will stimulate growth or create jobs. In addition to this, principal owners with more than 20% or more equitable shares in the company must provide a personal guarantee.
Lastly, the applicant’s net worth must not exceed $15 million, while the business’s average net profit must also not exceed $5 million after taxes over the past two years.
If you need SBA loans to fund your project, consider reaching out to 18 Sierra Financial today. Our loans are tailored to meet various business needs while also keeping in mind the success of your long-term operations.