SBA Loans: How the 504 Program Works

One of the best ways to finance small business ventures is through SBA loans. In fact, the Small Business Administration was set up to help “mom-and-pop shops” get off the ground. The 504 loan program offers business owners a financing opportunity for purchasing equipment or real estate, and the terms of the loans are oftentimes more appealing than big-bank financing.

Benefits of the 504 Program

This program was enacted to encourage economic growth through small business development. Qualified borrowers reap the rewards of lower interest rates and down payment requirements and longer remittance periods. In addition, the loan amounts themselves are more flexible, ranging from as little as $1,000 to as much as $13 million. No collateral is needed to back a 504 application, so even start-ups may qualify for the money.

Your Approval Requirements

In order to qualify for this offering from the pool of SBA loans, you must meet the following criteria:

  • You must have a personal credit score of 680 or higher
  • You should have a positive debt-to-income ratio
  • You must be able to finance at least a 10-to-15 percent down payment
  • Your tangible net worth cannot be more than $15 million
  • Your net income cannot be more than $5 million over the last years combined

If you meet all of the above, there is a good chance that you might qualify for an SBA 504 loan. Of course you will need to provide documentation to support the bullet list, including your company and personal financials, and a recent copy of your credit report.

Additional Requirements

For what you are seeking funding will also affect whether you are approved for the 504 program. SBA loans within the 504 program also attach stipulations to your desired purchase. For example, if you are financing equipment, your purchase must show that it will hold an economic life for 10 years. If you are financing real estate, the property must be 51-percent owner occupied for existing buildings and 60-percent owner occupied for planned construction.

In addition, you must create jobs with the funding received from this SBA program. For every $65,000 you borrow, the government expects you to open one new job within your business.

Where to Get the Loan

To apply for your SBA 504 financing, you can opt to go through a participating bank or local Certified Development Company. The latter is designed specifically to help your local economy boom, and providing SBA loans and the development they fund is part of their mission. Now, go get your money and improve your local economy.

SHARE IT:

Related Posts

Leave a Reply

You can use these tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>