Lending Partners

SBA-504 FAQ

What are the main advantages of a 504 loan?
How is a 504 loan deal structured?
How long does it take to get a 504 loan done?
What are the fees involved and how does prepayment work?
Can soft costs be included in a 504 loan?
Why are different rates quoted for SBA 504 loans?
What is the maximum loan you can do with a 504?
How big can the company be?
How much space does the business have to occupy?
What kind of equipment can be financed with a 504 loan?
Can home equity lines of credit be used for the borrower down payment?

What are the main advantages of a 504 loan?

low down-payment requirements
long repayment terms (20 years)
projected income is considered, not just historical cash flows
collateral may be less critical in loan qualification decisions.

How is a 504 loan deal structured?

Most 504-financed purchases are for office, retail or industrial buildings. SBA-504, fixed-rate loans finance 40 percent of the total purchase. A bank or other lender provides 50 percent and the business owner contributes a 10 percent down payment.

How long does it take to get a 504 loan done?

Straight purchases usually require no more than 90 days. If construction is involved, this can extend the process. Construction and tenant improvements are typically financed via a bridge loan. The permanent 504 loan takes out the bridge loan.

What are the fees involved and how does prepayment work?

The fees for a 504 loan, which are financed in the loan, are approximately 2.125%. There’s also a fee for legal review. Fees are negotiated for the 50% bank loan accompanying the 504 loan. Weighted average fees for both loans are 1.5%. Prepayment Guidelines

Can soft costs be included in a 504 loan?

Yes, "soft costs" (e.g. appraisals, environmental, construction interest, closing costs) also can be financed in the 504 loan, allowing the small business to preserve working capital.

Why are different rates quoted for SBA 504 loans?

CDC Small Business Finance quotes the industry standard effective rate as published by the National Association of Development Companies on a monthly basis. This rate represents the average rate the small business borrower pays over the twenty year period of the loan. Since rates are reset every five years a borrower may pay four unique interest rates over the 20 year term of the loan. These rates are averaged to provide the effective rate. Be sure to verify that the rate you are being quoted is the “effective rate” as recognized by the 504 industry.

What is the maximum loan you can do with a 504?

SBA-504 loans can finance up to 40% of the total loan amount or $2 million. For manufacturing businesses, 504 loans can finance up to $4 million.

How big can the company be?

The business net worth must be less than $8.5 million. After-tax income must be $3 million or less, on average, for the prior two years.

How much space does the business have to occupy?

The business must occupy 51% of an existing building purchases, 60% of a newly constructed facility.

What kind of equipment can be financed with a 504 loan?

Long-term machinery and equipment with a useful life greater than 10 years (e.g., a printing press).

Can home equity lines of credit be used for the borrower down payment?

If equity is borrowed and secured by another asset, CDC must demonstrate repayment of the loan for the equity contribution from sources other than the cash flow of the business (salary of owner does not qualify).