The Ultimate Guide for SBA 504 Loans

The Ultimate Guide for SBA 504 Loans

An SBA 504 loan is one which is guaranteed by the Small Business Administration to provide financing for businesses intending to purchase equipment, real estate, or other assets. This particular SBA loan is somewhat different from others offered by the SBA, in that it involves three distinct parties, those being the bank, the borrower, and an SBA-approved company identified as a certified development company (CDC).

Particulars of an SBA 504 Loan

Here are some of the main features which characterize an SBA 504 loan. As stated above, it will be used for the purchase of land, equipment, buildings, or machinery to be used in the conduct of your business operations. The amount of the loan can go as high as $5 million on the CDC part of the loan, and as high as $5.5 million for some specific businesses.

Interest rates will be fixed, and will typically be in the neighborhood of 5% to 6% for the CDC part of the loan, with the bank portion being variable. Repayment terms for a 504 loan can stretch as long as 25 years, although typically they are for a shorter time frame. It will be necessary to provide at least a 10% down payment of the loan amount, so that for instance if you were to borrow $1 million, you would be obliged to put down $100,000 up front.

The collateral involved in a 504 loan is generally the land or property itself, although it will usually be necessary for the borrower to provide a personal guarantee of up to 20% as well. The business owner would be obliged to make this personal guarantee, in order for the SBA and the bank to have greater surety. The fees involved in acquiring a 504 loan will consist of both CDC fees and SBA fees, in addition to any fees imposed by the bank itself.

Does Your Small Business Need an SBA 504 Loan? 

We work with the SBA on loans, so we may be able to provide financial assistance if you’ve applied with the SBA for a 504 loan. Contact us at DrawBridge Capital to discuss your loan requirements.