How to purchase property with an SBA 504 loan?
SBA 504 loans are an excellent choice when building a new facility or renovating an existing property. In addition to purchasing or remodeling the building itself, you can also use SBA 504 loans for property improvements such as adding a parking lot, connecting your facility to utilities (gas, power, sewer, water, Internet, etc.), and/or landscaping.
The benefit of an SBA 504 loan over standard commercial loans you’d normally find at other financial institutions is that they generally provide much lower interest rates. Bank rates are typically between 5% to 7% and can be either fixed or variable. The Certified Development Company (CDC) portion of an SBA 504 loan is between 3% and 4% and is fixed for the term of the loan. Another primary benefit of SBA 504 loans is that they generally do not require additional collateral.
While you may also be able to rent space out from the facility you are purchasing or remodeling, it is important to know that you will need to occupy a majority (at least 51%) of the space you’ll be buying.
To qualify for an SBA 504 loan, you must meet the following conditions:
- Credit Score—You need to have a credit score of 680 or higher
- Limited Outstanding Debt—Your Debt Service Coverage Ratio should be no lower than 1.25
- Down Payment—You must be able to satisfy the down payment requirement
- Proof of Payment Ability—You will be required to show that you can reasonably afford the monthly payments of your loan
- Clean Financial History—In addition to not having a lot of outstanding debt, you should also not have a history of recent bankruptcies, foreclosures, or tax liens.
Ready to build something spectacular? Contact us let’s get you started. 504 Capital Corporation has an Accredited Lenders Program (ALP) designation for Certified Development Companies (CDCs). This means we can expedite the process if the purchase of the property is time sensitive.