An SBA 504 loan is a government-backed, long-term financing tool designed for small businesses to purchase major fixed assets, such as commercial real estate or machinery, with a low 10% down payment. It features fixed-rate, below-market interest rates to promote business expansion and job creation.
As a business owner, the Small Business Administration (SBA) 504 loan program is the best tool for purchasing or constructing owner-occupied commercial real estate. By using the SBA 504 you will be able to finance your project with the lowest down payment and a 25-year fixed rate term.
To qualify for the Section 502 program, the household's adjusted income cannot exceed the low‐income limit for the applicable location and household size. To qualify for the Section 504 programs, the household's adjusted income cannot exceed the very low‐income for the applicable location and household size.
Net worth restrictions: Businesses that wish to obtain a 504 loan must have a net worth of less than $15 million. Average net income: To qualify for an SBA 504 loan, businesses must demonstrate an average net income of less than $5 million after taxes for the two years prior to the application.
The drawbacks of the SBA 504 Loan Program include:
Long-term, fixed rate financing of up to $5 million for major fixed assets.
SBA 504 loans aren't inherently "hard" but have specific, somewhat strict requirements, making them challenging if your financials or business structure aren't a good fit; they require good credit (around 625+), a solid business plan, demonstrated need (can't get funds elsewhere easily), and lower personal net worth/income, plus patience for the lengthy approval process (60-90+ days), often needing a strong down payment (10-20%).
SBA 504 loans are used for fixed business assets, like buying commercial real estate, and often require at least a 10% SBA loan down payment towards the total project.
A: Yes. Again, because bonds are sold on the open market to fund the SBA 504 loans, there is a 10-year prepayment penalty associated with all 504 loans with a 20-year or a 25-year term and a 5-year prepayment penalty associated with all 504 loans with a 10-year term.
SBA 7(a) Eligibility Updates – The New Minimum Requirements for an SBA 7(a) Loan
Yes, a new LLC can get an SBA loan, but it's challenging as lenders often prefer established businesses (2+ years), requiring strong personal credit, a solid business plan, and sometimes collateral, though SBA microloans and certain 7(a) programs offer more flexibility for startups, focusing on the owner's creditworthiness and feasibility of the business idea.
Section 504 helps ensure that students with disabilities have equal access to educational opportunities.
As shown in Table 1, 504/CDC projects generally have three main participants: a third-party lender provides 50% or more of the financing; a CDC provides up to 40% of the financing through a 504/CDC debenture, which is 100% guaranteed by the SBA; and the borrower contributes at least 10% of the financing.
The timeline for SBA 504 loan approval can vary, but on average, the process takes between 30 and 90 days from application to initial funding approval.
It's usually expressed as a percentage of the purchase price. So, if your mortgage requires that you put down, say, 3%, the down payment needed for a $500K house would be $500,000 x 3% = $15,000. And a 20% down payment would require $100,000 ($500,000 x 20% = $100,000).
Your score falls within the range of scores, from 300 to 579, considered Very Poor. A 504 FICO® ScoreΘ is significantly below the average credit score.
In most cases, SBA 504 loans are structured in a 50-40-10 model. First is the bank loan, which is 50% of the total amount. Second is a Certified Development Company (CDC) who provides 40% of the total loan amount. And third is the borrower who provides a 10% down payment.
If you cannot go green, you can still take out an additional 504 loan so long as your total amount borrowed does not exceed $5 million in total funding. Think of it this way: your business can borrow a total of $5 million in 504 loans over time. You can take out as many loans as needed to reach that total amount.
A $20,000 loan over 5 years (60 months) costs roughly $2,600 to over $7,000 in interest, with monthly payments varying significantly by Annual Percentage Rate (APR), such as around $377 at 5% APR or $445 at 12% APR, meaning total repayment could range from approximately $22,600 to over $26,700.
SBA 504 Loan Fees: What You Need to Know
SBA Guarantee Fee: 0.5% of the loan's total value. Funding Fee: 0.25% of the loan's total. CDC Processing Fee: 1.5% of the loans total. Closing Costs: Variable depending on loan amount.