Four Reasons Why Small Businesses Should Utilize the SBA 504 Loan

To take your small business to the next level, you’ll certainly need more capital injection to facilitate your expansion process. That means getting a small business loan from a lender. However, getting small business loans from commercial banks and other mainstream lenders can be an uphill battle because the small business lending process is stringent, takes time, and chances of rejection are high. However, don’t sweat it because you can utilize the SBA 504 loan program.

What’s an SBA 504 Loan?

The U.S. Small Business Administration (SBA) provides small business owners with long-term and fixed-rate financing through the 504 loan program. You can access SBA 504 loans through Certified Development Companies (CDCs), which are certified and regulated by the SBA. You qualify for an SBA 504 loan if you operate your for-profit small business in North America and its territories. Additionally, your small business must have a net worth of less than $15 million and have an average income of less than $5 million after paying federal taxes in the last two years before your application.

Through CDCs, the SBA has made small business lending more accommodating for many small businesses. In 2018, the average amount for loans backed by SBA was $107,000. SBA 504 loans allow you to buy major fixed assets that stimulate business growth and enable you to create more jobs.

Once you get your SBA loan, you can use the capital to develop existing buildings and land for your business use, purchase long-term machinery and equipment that’s capital intensive, or construct new facilities for your business. However, you cannot use your 504 loans as working capital or buy business inventory, repay or refinance existing debt, or use the money for speculative activities.

As a small business owner, applying for SBA loans will work to your advantage. These are four benefits you’ll enjoy…

Benefit #1: Access to Large Loan Amount

SBA 504 loans can cover up to 90% of your project’s total costs. This is good news for small business owners because most lenders typically don’t lend small businesses large loans. SBA may back 40% of your loan, and a lender will cover 50%. Your business can easily cover the remaining 10%. Using SBA loans is the easiest and most effective way to finance your capital-intensive business projects, such as expanding or upgrading your facilities.

Benefit #2: Fixed Interest Rates with Flexible Repayment Terms

Unlike banks and other mainstream lenders that have variable interest rates, SBA loans have fixed interest rates. This is favorable to your bottom line since you’ll pay a fixed amount for the entire length of your loan period. This makes it more convenient to plan for monthly or annual payments. Additionally, SBA loans have longer repayment periods. Therefore, you will have more time to make payments, and you will feel less pressure.

Benefit #3: SBA 504 Loans are More Affordable

When you take into account the fixed interest rate, low down payments, and longer loan repayment periods, you’ll find that 504 loans are more affordable. As a small business owner, you want a lender who will grant your large loans with low-interest rates and longer repayment periods. It’s almost impossible to find a bank loan with all the perks of an SBA 504 loan.

Benefit #4: You Will Get Help from CDCs

Certified Development Companies will help you apply and qualify for the SBA 504 loan program. CDCs help you get your paperwork in line and verify that you’re working with a qualified lender. CDCs are dedicated to helping entrepreneurs succeed by enabling and supporting small business lending.

As a small business owner, you need business loans to grow your business. This requires a lot of capital injection, especially if you plan to expand your business facilities substantially. As your small business expands, you’ll need small business lending services to buy new machinery and equipment, construct new facilities for your business, or buy land for business use. Good thing you can utilize SBA 504 loans.

Let Lewis & Clark Development Group Help You Grow Your Small Business

Put Lewis & Clark Development Group’s small business assistance team to work for you. Contact LCD Group Senior Lending Director Ashley Hruby at (701) 667-7607 or at ashley@lcdgroup.org today.

Click here to learn more about the SBA 504 Loan program.