The Small Business Administration (SBA)’s 504 Loan Program was created specifically to help small businesses by granting access to long-term, fixed-rate financing. What does this mean? Whether you are either brand new or growing, an SBA 504 loan makes it possible for you to expand, modernize, and/or purchase real estate.
Typical borrowers come from all branches of the medical/professional, retail/service, industrial, and special-use industries. This can be anything from doctor’s offices to recycling facilities to mini-storage facilities.
Why Are 504 Loans So Popular?
- Low-interest fixed interest rates.
- As low as a 10% down payment.
- Funds the total cost of the project, including furniture, closing costs, and fees.
- Fixed interest rate allows for predictable payment amounts.
What Can 504 Loan Financing Be Used For?
- Modernizing existing facilities
- Building new facilities
- Machinery and equipment
- Debt refinance with expansion
- Professional fees, such as appraisal, title insurances, and document stamps
- Seasonal financing
- Export loans
- Revolving credit
- Refinancing business debt
Before getting into some of the best ways you can use the SBA 504 loan, make sure you’re clear about what’s not allowed. This includes:
- Start-up costs
- Working capital
- Purchasing inventory
- Consolidating debt
- Repaying debt
*The SBA offers a separate loan subprogram (see below) to help small business owners reduce their financial obligations.
Top 5 Ways to Use Your SBA 504 Loan:
- Open New Locations – One benefit of the 504 is a purchase-renovation feature. This lets borrowers finance both the purchase and improvements to an existing building or property in one transaction. For example, as you expand your business, you can buy a building that doesn’t quite work as-is and remodel it with the same funds.
- Go Green – If you’re updating an existing facility, why not make it more energy efficient? As an incentive, SBA’s Grow (504) Loan Program will provide environmentally friendly projects with up to an additional $5 million in second mortgage funds. This financing is not affected by any pre-existing SBA loans. So, by spending less on your utility bill, you can get more capital for building projects!
- Purchase Equipment – If dismantling, transporting, and installing equipment is a part of your comprehensive 504 projects, those costs are all covered. Please note that If the project is only to be used for machinery and equipment, both must have a useful life of at least 10 years. Some examples include X-ray machines, dry-cleaning equipment, commercial printers, and equipment that generates renewable energy.
- Fulfill a Dream – While SBA 504 loans can’t provide “start-up” funds for new businesses, they can, however, offer financing for a start-up company’s fixed asset purchase (or construction or renovation of that purchase). In those cases, a borrower must provide an additional 5% equity, bringing total equity injection to 15% vs 10%.
- Refinance Existing Debt – A 504 refinance loan is always combined with a bank loan to refinance any debt you’ve previously incurred for commercial real estate and fixed-asset projects. Under this program, available through 504 Capital Corporation, an SBA CDC loan provider serving Maryland, Virginia, and North Carolina, you can apply for below-market, fixed interest rate refinancing. One benefit of the loan is that you’re able to cash out up to 20% of the value of the property to use as working capital.
Why Choose 504 Capital Corporation?
At 504 Capital Corporation, we know that whether a business succeeds or fails can depend on access to affordable loans. As a top SBA 504 lender in Maryland, Virginia, and North Carolina, our team of experienced lending officers is committed to putting our skills and knowledge to work for you. To get started on achieving your business’ full potential, contact us today at (757) 623-2691.