SBA 504 “101”

Entrepreneurs are inspiring to work with because they have ideas and visions that push against the status quo. Bringing those ideas to life generally requires funding and we have had the privilege of helping hundreds of small businesses with that piece of the puzzle. Of course, choosing the right loan is a big decision and smart business owners do their homework. Here are three common questions that potential clients often ask our team:

Why should I consider SBA 504 funding instead of a traditional bank loan?
The SBA 504 program was created with small businesses in mind, so financing is structured to meet their specific needs. For typical commercial property purchases, 50% of the loan comes from a third-party lender; a bank or other financial institution. 40% of the financing is provided by a Certified Development Company (CDC) like Bay Area Development Company and is 100% backed and guaranteed by the SBA. The small business is responsible for the remaining 10% of the total project cost – a much lower investment than traditional bank loans.

In addition to a low down payment, SBA 504 loans offer below market rates and terms of up to 25 years, depending on the project. The lower initial investment combined with long terms and low rates means small business owners can put their money to work instead of working to afford high monthly loan payments.

My growth plans don’t include buying commercial real estate. Does that mean I can’t get an SBA 504 loan?
While most SBA 504 loans are used to purchase owner-occupied commercial property, funding can be used to make improvements to existing facilities. It can also fund acquisition of heavy machinery and other equipment that has a life of at least ten years. These investments have a significant, positive impact on small businesses’ ability to grow and stay competitive. Bay Area Development has helped clients purchase solar panels to reduce utility costs, additional assembly line equipment to expand product offerings, even bottling equipment to help a brewery meet customer demand. SBA 504 loans can also be used to refinance existing high-rate mortgages on owner-occupied commercial property. You can learn more about that program here.

How do I know if my company and my project are the right size for SBA 504 financing?
The SBA’s definition of a small business is “a for-profit company operating in the United States, with a tangible net worth of no more than $20 million, and an average after-tax income of $6.5 million or less for the previous two years.” Well-structured new ventures may also qualify so be sure to check with your local CDC even if your company is fairly new. The one constant is that you must have a proven ability to repay your loan.

In terms of project size, we have helped clients with projects ranging from as little as $250,000 to projects as large as $30 million or more. You can see how SBA 504 funding could benefit you with our loan calculator. With just a few details – and a few minutes of your time – you’ll get a no obligation sample structure, including estimated down payment, loan terms, and monthly payment information. And, like thousands of small businesses across the country, you may discover that SBA 504 financing delivers the power you need to confidently make your growth goals a reality.