At Starting Gate Financial, we understand that financing is crucial for small businesses looking to expand, buy commercial real estate, or acquire high-value equipment. One popular financing option is the SBA 504 Loan, which offers long-term, fixed-rate financing to help businesses grow. This blog covers everything you need to know about SBA 504 loans, including their purpose, benefits, current rates, and how to qualify.
What is an SBA 504 Loan?
The SBA 504 Loan is a government-backed loan providing affordable financing for small businesses. It focuses on funding the acquisition of fixed assets such as real estate and machinery, making it an excellent choice for companies aiming to expand operations or modernize infrastructure.
The loan involves three parties:
- The Business Owner: Typically responsible for a 10% down payment
- Certified Development Company (CDC): A non-profit organization backed by the SBA, which finances 40% of the project cost
- Private Lender or Bank: Covers the remaining 50% of the cost
Key Features of SBA 504 Loans
- Low Down Payment: Only 10% to 20%, preserving cash flow for other business needs
- Long-Term Financing: Terms of 10, 20, or 25 years depending on the project
- Fixed Interest Rates: Predictable monthly payments with below-market rates
- Large Loan Amounts: Up to $5 million for standard projects and $5.5 million for energy-efficient projects
Current SBA 504 Loan Rates (November 2024)
- 25-Year Term: 6.28%
- 20-Year Term: 6.35%
- 10-Year Term: 6.46%
These rates include CDC, SBA, and servicing fees, making the SBA 504 loan a cost-effective option for long-term financing.
Eligible Uses of SBA 504 Loans
SBA 504 loans are specifically designed to fund large fixed-asset purchases, such as:
- Purchasing commercial real estate or land
- Building new facilities or renovating existing ones
- Buying heavy equipment or machinery
- Modernizing facilities to boost productivity
Who Qualifies for an SBA 504 Loan?
Eligibility requirements include:
- For-Profit Business: Must operate for profit
- Size Requirements: Must meet SBA’s small business standards, typically under 500 employees or certain revenue limits
- Occupancy Requirements:
- Existing Buildings: Occupy at least 51% of the property
- New Construction: Occupy at least 60% initially, up to 80% over time
- Net Worth & Income Limits: Tangible net worth under $15 million and average net income below $5 million over two years
Benefits of Choosing an SBA 504 Loan
- Fixed Interest Rates: Stability for planning and budgeting
- Lower Down Payments: Typically only 10%
- Extended Loan Terms: Up to 25 years for real estate loans
- Supports Business Expansion: Ideal for acquiring new facilities or renovating existing ones
How the SBA 504 Loan Process Works
- Application: Apply through a Certified Development Company (CDC), which works with a private lender.
- Approval: After approval, the business contributes the down payment while the bank and CDC fund the remainder.
- Funding: CDC issues a debenture and disburses funds for the project.
- Repayment: Make fixed monthly payments over the selected term.
How to Apply for an SBA 504 Loan
- Gather Documentation: Financial statements, business plan, and details about assets to purchase.
- Find a CDC: Work with a local Certified Development Company to guide you through the process.
- Consult Lenders: Compare multiple lenders to secure the best terms for the 50% financed by a bank.
For additional resources on small business financing, check out our internal guide: How Do Small Business Loans Work.
Why Choose Starting Gate Financial?
At Starting Gate Financial, we specialize in helping small businesses navigate complex financing options. Our team helps you shop across several SBA 504 lenders, ensuring you get the best terms. We provide expert guidance so you fully understand every step of the loan process and secure the financing to grow your business.
Learn more about our services here: Small Business Financing Solutions.
Conclusion
The SBA 504 loan is an ideal tool for businesses seeking to expand, modernize, or purchase high-value assets. Its low down payments, competitive rates, and extended repayment terms make it a reliable option for eligible small businesses.
Contact Starting Gate Financial today to explore whether an SBA 504 loan is right for your business. Our experts will guide you every step of the way.