A Primer on SBA 504 Loan Programs

A range of lending institutions in the U.S. offer varied funding and capital solutions for small businesses. And those loans range in size from small and quickly repaid amounts to larger and more complexly structured loans. In 2018, the Small Business Association (SBA) averaged $107,000 per loan to small businesses. With small businesses creating 60% of all new jobs, it’s money well invested. Of the many options, and their range of benefits, which is right for your small business? This article is going to give you an overview of one funding option in particular: the SBA 504 loan program.

What is an SBA 504 Loan Program?

The SBA 504 loan program, as distinguished from other lending structures, has among its objectives the advancement of small and emerging businesses that are likely to create new employment opportunities. In partnership with Certified Development Companies (CDC), the SBA 504 loan program seeks to develop not only businesses but also communities.

How Does the SBA 504 Loan Program Work?

In an SBA 504 loan, the SBA provides half of the loan amount, the CDC funds 40% of it, and the business owner contributes the remaining 10%. This partnership allows the transaction to have a number of benefits over other loan structures: they require no collateral, have more manageable down payments, have fewer and more reasonable fees, and offer borrower-friendly interest rates.

Which Kinds of Businesses Benefit Most from an SBA 504 Loan Program?

The 504 loan program is ideal for businesses that will use the funds for building new structures or facilities, purchasing equipment, purchasing land, refinancing debt, and so much more. These loan programs can’t be used for certain things, however, including marketing, and working capital. Also, non-profits and some other kinds of businesses are also ineligible for 504 loans.

How to Know if Your Business Could Qualify for an SBA 504 Loan Program

As with other loan programs for businesses, qualification is impacted by credit ratings and unresolved debt. A business’s manifest assets will have to include the 10% down payment as well as capital for partial repayment. This means that struggling businesses and businesses that have had to use formal bankruptcy may be less likely to qualify. SBA 504 loan programs also limit the size of the businesses that qualify: businesses with annual incomes greater than $5 million and net worth greater than $15 million for the prior two tax years will not qualify for this particular SBA loan.

How to Apply for an SBA 504 Loan Program

With more than 200 CDCs active in the U.S., you are likely able to apply with an institution near you including the Lewis & Clark Certified Development Company (CDC).  The Lewis & Clark CDC (which is part of the Lewis & Clark Development Group) is a private non-profit corporation certified to administer and facilitate the SBA 504 loan program throughout North Dakota. In preparation for an initial inquiry into the 504 loan program, carefully evaluate your business’s assets and current (last two years) tax history. Be prepared with your credit information as well as a plan for how the funds will be used to create jobs, achieve greater energy efficiency, and otherwise, conform with and support the SBA’s public policy.

While the stated and prevailing objective of the SBA 504 loan program is to help businesses create jobs, improve energy efficiency, and reinforce the SBA’s public policy initiatives, every lending institution believes that a rising tide lifts all ships. Successful businesses that generate revenue are the ultimate goal of nearly all business loans and the 504 program is no different. Contact us today about how this loan or another can help you and your small business succeed.

Contact Lewis & Clark Development Group to learn more about funding your small business.