Expanding your small business is a costly endeavor. It requires funding at different stages of growth—demanding new equipment, machinery, and property to accommodate more significant business operations.
Commonly, large financial institutions and banks recommend conventional business loans as a funding source for businesses. But these loans are restricted to older businesses with a more extensive credit history. Small Business Administration (SBA) loans are specifically designed for those smaller and newer businesses that do not qualify for conventional loans. The SBA 504 loan program does what conventional loans do and more, granting various benefits to successful small business entrepreneurs; here’s how.
1. Lower Down Payment
The most notable benefit of the SBA 504 loan program is its strikingly low 10% down payment of the total project cost. Meaning, that if a borrower is seeking an SBA 504 loan for a $500,000 project, they would only need to put down $50,000. However, it is important to note that this does not apply to special-use properties, which are subjected to higher costs. Regardless, this beats the conventional loan’s 10%-20% standard, making it a more attractive choice despite its lengthier (but more rewarding) process.
2. Longer Repayment Term
SBA 504 loans also supply a longer repayment period than conventional loans. Conventional loans typically have a repayment term average of 5 to 10 years, while SBA 504 loans can be up to 25 years. By giving small business owners much more time and flexibility to manage their cash flow, SBA 504 loans let borrowers spread out their contributions over a longer course of time.
3. Access to Larger Loan Amounts
Borrowers can also access larger loan amounts with SBA 504 loans. This is because the SBA 504 loan program is government-funded and designed to encourage economic growth and development for small businesses. When taking out an SBA 504 loan, you can gain up to $5 million in financing, depending on your qualifications and project size. The funding structure is as follows:
- The business owner contributes a minimum of 10%.
- A reputable lender or bank puts down up to 50%.
- The Certified Development Company (CDC) provides the remaining 40%.
In contrast, conventional loans are provided by private lenders like banks and credit unions, and the lender assumes the risk. The loan amounts are, therefore, smaller, and the borrower is limited by factors such as credit history, cash flow, and collateral.
4. Expertise and Resources
Since the government backs SBA 504 loans, there is no shortage of expertise and resources to use for the borrower’s benefit; that’s where conventional loans fall short. The SBA doubles as a hub for valuable tools like training, counseling, disaster assistance, and more, making it much more practical for a small business owner’s unique needs.
The loans are also provided through Certified Development Companies (CDCs), nonprofit organizations that work closely with the SBA to provide small business owners with funding. They are focused on promoting economic development in local communities through access to affordable capital and resources that can help small businesses grow and thrive. Certified by the SBA, the two entities work together to help businesses succeed through SBA 504 loans.
5. Fixed Interest Rates
Another unique quality of SBA 504 loans is the fact that they enable small business owners to invest in their business how they want to, giving them the ability to purchase or improve commercial real estate, heavy machinery, construction, or finance equipment at below-market interest rates. Assets can be secured with fixed asset rate financing, debt service coverage, owner-occupied real estate financing, and a 25-year fixed interest rate, meaning the SBA 504 loan rates remain constant throughout the loan’s life—guaranteeing predictable monthly payments.
It’s important for borrowers to consult their Certified Development Company (CDC) or SBA-approved lender to get the most up-to-date information on the fixed interest rates available for SBA 504 loans, as rates can vary over time.
Experience Financial Freedom with 504 Capital
When SBA 504 Loans are the Answer, 504 Capital is there to help you finance your small business goals. 504 Capital Corporation is a multi-state Certified Development Company (CDC) licensed and regulated by the SBA to provide 504 loan financing to growing and expanding small businesses in Virginia, North Carolina, Maryland, and the District of Columbia.
With the SBA 504 Loan Program, you can get up to 90% commercial financing at below-market, fixed interest rates, and repayment terms of up to 25 years. Whether you need to purchase commercial real estate or heavy-duty machinery and equipment or want to refinance your existing business debt, we have the expertise to fulfill your needs.
Invest in your business’s future.