The first step towards financial independence is taking control of your business property and land. SBA 504 loans were designed to do just that; by facilitating economic growth in small businesses with fixed asset acquisition, business owners obtain the resources needed to grow. Among heavy machinery, equipment, and construction, business owners gain the power to purchase commercial real estate and transverse their businesses to new locations at new heights.
SBA 504 Real Estate Loans
Small Business Administration (SBA) 504 loans, also known as the SBA CDC loan program, give small business owners the funding to finance and build facilities using long-term, fixed-rate financing. The 504 loan program offers low-interest rates, a 10%-20% low down payment, and long amortization periods to help secure the new property for business operations. Organized by Certified Development Companies and overseen by the government, the loans are dispersed among three parties:
- A third-party lender, bank, or credit union (50%)
- A Certified Development Company (40%)
- The borrower (10%)
SBA 504 Real Estate Loan Uses
SBA 504 loans apply to owner-occupied commercial real estate, a piece of commercial property that houses the operations of the small business owner (51% occupancy). Owner-occupied properties allow for 49% free space for tenant income. But if you’re a new business using your SBA 504 loan for a “special purpose property” (amusement parks, parking lots, stadiums, bowling alleys, zoos, theaters, etc.), then a larger down payment applies to you. Nevertheless, these loans provide essential funding for small businesses to purchase, construct, and renovate buildings to relocate their business to better locations or purchase a property they have been renting.
Along with no balloon payments or significant assets taken as collateral, the SBA will ensure a 100% guarantee on the CDC portion of the loan so that you can use your SBA 504 real estate loan as your business sees fit. Real estate financing helps improve an existing property or purchase a new one, which modernizes your business in turn.
- Land or building renovations or purchases
- Land improvements like new curbs, sidewalks, or parking lots
- Building improvements like new roofing or updated plumbing systems
- Equipment and heavy machinery purchases
- Potential debt refinancing
Rates and Terms
Depending on the SBA 504 project size, the CDC allows up to $5 million in financing, with some projects eligible for up to $5.5 million. The SBA does not cap the maximum funding amount for the whole project and sets the repayment term for 20-25 years. Unlike real estate, equipment purchases have to be repaid within ten years.
The interest rates also vary, relying on banks and the CDC to finance small businesses. The 50% in bank financing toward the loan can have a fixed or variable interest rate that changes based on your business criteria. However, the SBA interest rate is fixed for up to 25 years.
504 Capital—Virginia’s Leading SBA 504 Lender
Whether you’re seeking a commercial real estate loan in Virginia, North Carolina, or Maryland, 504 Capital’s team of financial professionals has the expertise to help your business grow. Our economy starts with small businesses—that’s why our loan officers give entrepreneurs extensive financial education on the 504 loan process to boost their business’s presence. The result is thousands of thriving businesses across the region.