For small businesses looking to purchase major fixed assets or make significant facility or property improvements, SBA 504 loans are an excellent financing option. These loans offer multiple unique advantages that make them attractive, specifically for long-term investments and SBALoansAtlanta.com can help.
What is an SBA 504 Loan?
The SBA 504 loan program provides long-term, fixed-rate financing for major fixed assets that promote business growth and job creation. These loans are available through Certified Development Companies (CDCs), which are SBA’s community-based nonprofit partners.
Key features of SBA 504 loans include:
- Maximum loan amount of $5.5 million
- Financing with 10, 20 or 25-year terms
- Fixed interest rates based on 10-year U.S. Treasury rates
- Up to 90% loan-to-value ratio
Eligibility and Use of Funds
To be eligible for an SBA 504 loan, there are restrictions and stipulations. Your business must:
- Operate as a for-profit company in the United States
- Have a tangible net worth of less than $15 million
- Have an average net income of less than $5 million after federal income taxes for the two preceding years
SBA 504 loans can be used for:
- Purchasing existing buildings or land
- Constructing new facilities
- Acquiring long-term machinery and equipment
- Improving or modernizing existing facilities
It’s important to note that these loans cannot be used for working capital, inventory or debt consolidation.
SBA 504 Loan Benefits
SBA 504 loans offer several advantages over traditional financing options:
- Lower down payments (typically 10%)
- Longer repayment terms
- Fixed interest rates
- Below-market rates compared to conventional loans
These benefits can significantly reduce monthly payments and improve cash flow for small businesses.
The Application Process
Applying for an SBA 504 loan involves the following steps:
- Find a Certified Development Company (CDC) in your area
- Complete the pre-qualification process
- Gather required documentation
- Submit your loan application
- Find a third-party lender to finance their portion of the project (like Signature Bank)
SBA 504 Loan Considerations
While SBA 504 loans offer many advantages, they may not be suitable for every business situation. The application process can be long, sometimes taking up to six months. If the financial need is immediate, this likely won’t work for you. Additionally, these loans are specifically designed for fixed asset purchases and cannot be used for working capital or other operational expenses, so funding utilizations are quite specific.
Signature Bank President and Chief Lending Officer Steve Reagin encourages businesses to consider applying for an SBA 504. “504 loans are a wonderful for clients to purchase a building or equipment. It allows for our client to put less cash down at closing, usually 10% less, while also getting a blended fixed rate that is usually better than banks can do on a straight conventional real estate loan.”
SBA 504 loans are a powerful option for small businesses looking to invest in their long-term growth through real estate or equipment purchases. By offering favorable terms and below-market rates, these loans can help businesses expand their operations, create jobs and contribute to their local economy. If you’re considering a major fixed asset purchase for your business, explore the SBA 504 loan program with Signature Bank of Georgia. It could be a very smart financial move for the future of your business.
