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Exposing the Myths - 3 Common Misconceptions for the SBA 504 Loan
Exposing the Myths – 3 Common Misconceptions for the SBA 504 Loan [Part I]
Exposing the Myths - 3 Common Misconceptions for the SBA 504 Loan

Exposing the Myths – 3 Common Misconceptions for the SBA 504 Loan [Part I]

Exposing the Myths – 3 Common Misconceptions for the SBA 504 Loan [Part I]

In small business finance, the SBA 504 loan often seems shrouded in mystery. Rumors and misconceptions circulate, causing hesitation among potential borrowers. Today, we debunk the top three myths: the long process, the false notion that this loan is only for small or new companies, and the misunderstood occupancy requirement. Read on to learn the details from 504 Capital’s SBA-certified lenders!

Myth 1: The Process is Too Long

Contrary to popular belief, securing an SBA CDC 504 loan is not an endlessly drawn-out process. Yes, due diligence and meticulous paperwork are required – which should be a given for any financial commitment of this magnitude. However, with the right preparation and the experienced guidance of a CDC small business finance institution, you can potentially have your loan approved in as little as 60 to 90 days.

To gain government approval for your SBA 504 loan as quickly as possible, make sure your business meets the following preconditions: 

  • A concrete net worth of less than $15 million 
  • An average after-tax net income of less than $5 million over the past two years 
  • A United States business permit 
  • Certified management experience 
  • A solid business plan 
  • The intention to use the loan proceeds for fixed asset acquisition or improvement (land and buildings, machinery and equipment, or construction)
  • The means to repay the loan
  • Being a for-profit enterprise
  • A good credit score
  • Having less than 500 active employees

Read more:  SBA 504 Benefits, Guidelines, and Eligibility!

Myth 2: It’s Only for Small and/or New Companies

The SBA CDC 504 loan is not exclusively reserved for small or newly established businesses. The truth is that a wide array of businesses can qualify for this loan regardless of their size or number of years in operation. As long as your company meets the standard requirements set by the CDC small business finance institution, you’re eligible to apply.

It’s much simpler to point out the businesses that do not qualify for the SBA 504 loan, including:

  • Businesses involved in lobbying, political, or advocacy activities.
  • Passive businesses, including landlords, that do not actively use or occupy the assets acquired with the loan.
  • Non-profit organizations which do not engage in for-profit activities.
  • Businesses primarily engaged in promoting religion.

Read More: special-purpose properties and collateral requirements 

Myth 3: Business Must Occupy 100% of the Space

The common misconception that a business must occupy 100% of the space financed by an SBA CDC 504 loan is simply not true. The CDC small business finance program requires that small businesses must occupy at least 51% of the property for existing structures or 60% for new construction, not the entire property. This occupancy requirement allows businesses the flexibility to lease out the remaining space, generating additional revenue that can be used towards loan repayment or other business expenses. It’s clear that the SBA CDC 504 loan offers businesses more flexibility and advantages than the common myths suggest.

Learn more:  owner-occupied commercial real estate !

Call the SBA 504 Mythbusters

By debunking these myths, we at 504 Capital hope to have cleared a path toward profitable business success. The SBA CDC 504 loan is more accessible, flexible, and beneficial than you might have initially thought. So, why wait?  Start your application now!

Apply Now