Your business is flourishing, and with that comes an increase in purchasing. Equipment, construction, factory-grade machinery, heavy equipment, and commercial real estate are just some things that will need updating as your organization reaches new heights. Luckily, the Small Business Administration’s SBA 504 loan only requires a 10% down payment to borrowers who own standard properties that are not special-use. Let’s assess the pros of the SBA 504 loan’s low down payment below.
Conserves Working Capital and Maximizes Cash Flow
The SBA 504 loan’s low down payment allows borrowers to sustain positive working capital. When less money is put towards the loan’s down payment, more money is used to pay the company’s bills and other investments to generate business growth. Positive working capital also grants business owners the ability to pay their employees and suppliers while funding interest payments and taxes. As you take out your SBA 504 loan, you will still have the financial room to cover liabilities and leeway for business growth and contingencies, even when running into cash flow problems.
Lowers Real Estate Down Payments
With the SBA 504 loan’s fixed-rate financing and low down payment, low-cost funding contributes toward large real estate purchases as well as construction, equipment, and heavy machinery. This is ideal for business owners looking to expand their business and secure new property. Other factors include:
- Purchasing or renovating new facilities
- Purchasing or engaging construction projects on existing land or buildings
- Updating land, streets, parking lots, utilities, and existing facilities
- Updating business-related landscaping
Minimizes Credit Risk
The SBA 504 loan’s low cost fixed rate financing and lower down payment minimize credit risk with less collateral impact for both the participating bank and borrower. An SBA 504 Loan is secured by the project assets only, leaving the other business assets unencumbered or available for other types of financing. SBA 504 loans can also offer refinancing and helps working lines of capital credit to reduce financial fallout.
Other Loans are Obtainable
Because SBA 504 loans beat the typical requirement of a 30% down payment with a shallow 10% base, small business owners can obtain other loans to increase their cash flow. With a conventional loan, more legwork and a higher down payment are required from the borrower. But with SBA’s involvement in the SBA 504 deal, the business owner has more breathing room to secure other fixed assets with a longer loan term, below-market interest rates, and no balloon payments.
SBA 504 Loan Down Payment Requirements
A 10% loan contribution is a general rule of thumb for most business projects. But this differs from company to company depending on organization size, age, and other factors.
For example, if you’re a small start-up business that is two years old or younger, a 15% down payment is required. Start-ups with a property that qualifies as “special-use” financing will need to supply 20% loan funding. Special-use properties have limited utility for non-project-related reasons. Note: the lender and the CDC have a direct down payment correlation— meaning, as you raise the value of your contribution, that cuts into the CDC’s 40% base. Check out our previous blog here for more information on the SBA 504 process.
Meet 504 Capital, Your SBA 504 Loan Expert
To take the first step toward your small business loan, you will need to consult the professionals. That’s where 504 Capital comes in—we connect you with the top SBA lenders in Virginia, Maryland, and North Carolina to help you achieve your business and financial goals.
We’ll walk you through the SBA 504 process with simple guides, financial statistics, and certified expertise. Just call us at 757-623-2691 or contact us to get started.
