Boost Your Business Growth with an SBA 504 Loan

At Reset Funding, we're dedicated to helping businesses like yours thrive. Beyond our existing range of loan programs, we're excited to offer the SBA 504 loan as another powerful option for significant growth and expansion.

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. Unlike other loans, a 504 loan involves a unique partnership between:

- Your Business (The Borrower): You contribute a down payment, typically 10-20% of the project cost.

- A Traditional Lender: Usually a bank or credit union, they provide 50% of the project financing and hold the first lien position.

- A Certified Development Company (CDC): These are non-profit organizations certified by the SBA. They provide up to 40% of the project cost, backed by a 100% SBA-guaranteed debenture, and hold the second lien position.

This structure allows for lower down payments and longer repayment terms, conserving your working capital for other business needs.

How Does an SBA 504 Loan Work?

Imagine you're looking to purchase a $1,000,000 commercial property. A typical SBA 504 loan structure might look like this:

- Your Business Contribution: $100,000 (10% down payment)

- Traditional Lender: $500,000 (50% of the project cost)

- Certified Development Company (CDC) / SBA: $400,000 (40% of the project cost)

The CDC portion of the loan is funded through the sale of debentures (bonds) to investors, which are guaranteed by the U.S. Small Business Administration. This government guarantee significantly reduces the risk for the traditional lender, making them more willing to offer favorable terms.

What Can You Use an SBA 504 Loan For?

SBA 504 loans are specifically designed for the acquisition, construction, or improvement of fixed assets. This includes:

- Purchasing Land and Existing Buildings: Acquiring real estate for your business operations.

- New Construction: Building a new facility from the ground up.

- Modernizing, Renovating, or Converting Existing Facilities: Significant improvements to your current space.

- Purchasing and Installing Long-Term Machinery and Equipment: Equipment with a useful life of at least 10 years.

- Soft Costs: Related expenses like architect and engineering fees, appraisals, environmental reports, and legal fees.

Important Note: SBA 504 loans cannot be used for working capital, inventory, or consolidating/refinancing existing debt unless it meets specific federal regulations. They are also not for speculative activities or investment in rental real estate where your business does not occupy the majority of the space.

Key Benefits for Your Business:

- Low Down Payment: As little as 10% down, preserving your cash flow. This is significantly lower than many conventional commercial loans.

- Long Repayment Terms: Enjoy terms up to 25 years for real estate and 10 years for equipment, leading to more manageable monthly payments.

- Fixed Interest Rates: The CDC portion of the loan offers a fixed interest rate for the entire term, providing payment predictability and protection against rising interest rates.

- Job Creation and Economic Development: The program's focus on job creation aligns with broader community goals, making it an attractive option for businesses looking to expand their workforce.

- Access to Capital: Helps businesses secure financing for large projects that might be difficult to fund through conventional means alone.

Qualifications for an SBA 504 Loan:

To be eligible for an SBA 504 loan, your business generally needs to meet the following criteria:

- For-Profit Business: Must operate as a for-profit entity in the United States.

- Small Business Size Standards: Your business must meet the SBA's size standards, which vary by industry. Generally, this means having a tangible net worth of less than $20 million and an average net income of less than $6.5 million (after taxes) for the preceding two years.

- Owner Occupancy: For existing buildings, your business must occupy at least 51% of the property immediately. For new construction, you must occupy 60% upon completion and have a plan to occupy 80% within 10 years.

- Job Creation/Retention or Public Policy Goals: The project must contribute to economic development by creating or retaining jobs, or meet specific public policy goals (e.g., energy efficiency, rural development, women/minority/veteran-owned businesses).

- Sound Business Purpose: You must demonstrate a need for the loan and a feasible business plan for how the funds will be used.

- Personal Guarantees: All business owners with 20% or more ownership are typically required to provide a personal guarantee.

- No Prior Federal Loan Defaults: Your business cannot have defaulted on any previous federal loans.

- Creditworthiness: While the SBA doesn't set a minimum credit score, lenders (banks and CDCs) will evaluate your credit history and ability to repay the loan. A strong credit score (often 680+) is generally preferred.

The Application Process:

The SBA 504 loan application process involves working closely with a Certified Development Company (CDC). Here's a general overview:

1. Connect with a CDC: This is your first step. The CDC will help you determine eligibility and structure the loan.

2. Prepare Documentation: Gather necessary financial statements (tax returns, profit & loss, balance sheets), business plans, and other relevant documents.

3. Lender and CDC Review: Both the traditional lender and the CDC will review your application and conduct due diligence, including appraisals and environmental reports.

4. SBA Approval: Once the lender and CDC approve, the application is submitted to the SBA for their final authorization.

5. Funding and Closing: Upon SBA approval, the loans are closed, and funds are disbursed.

While the process can take longer than conventional loans due to the multi-party involvement and government regulations (typically 30-90 days), the long-term benefits often outweigh the wait.

The SBA 504 loan program at Reset Funding offers a strategic pathway for businesses seeking to invest in their future through significant fixed asset acquisitions. It's a powerful tool for sustainable growth and a testament to our commitment to providing diverse financing solutions. Contact us today to discuss if an SBA 504 loan is the right fit for your business's next big step!