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Small Business Administration (SBA) loans are bank-funded government guaranteed loans. The SBA program allows banks to extend long terms for loans that otherwise would not be made. Unlike conventional commercial loans that typically have a three to five year call provision, SBA extends loans up to 25 years. There are two primary types of SBA loans: the SBA 7(a) loan and the SBA 504 loan.

SBA 504 Loan Program. The SBA 504 Loan program is a powerful economic development loan program that offers small businesses another avenue for business financing, while promoting business growth, and job creation. As of February 15, 2012, the $50 Billion in 504 loans has created over 2 million jobs. This program is a proven success and win-win-win for the small business, the community and participating lenders.

The 504 Loan Program provides approved small businesses with long-term, fixed-rate financing used to acquire fixed assets for expansion or modernization. 504 loans are made available through Certified Development Companies (CDCs), SBA's community based partners for providing 504 Loans.

What is a CDC? A Certified Development Company (CDC) is a nonprofit corporation that promotes economic development within its community through 504 Loans. CDCs are certified and regulated by the SBA, and work with SBA and participating lenders (typically banks) to provide financing to small businesses, which in turn, accomplishes the goal of community economic development.

There are over 260 CDCs nationwide each having a defined Area of Operations covering a specific geographic area. The area of operation for most CDCs is the state in which they are incorporated. To contact a CDC in your area, first use this link to locate your local SBA District Office.

504 Loan Structure. 504 Loans are typically structured with SBA providing 40% of the total project costs, a participating lender covering up to 50% of the total project costs, and the borrower contributing10% of the project costs. Under certain circumstances, a borrower may be required to contribute up to 20% of the total project costs.

Use of Proceeds. The use of proceeds from 504 Loans must be used for fixed assets (and certain soft costs), including:
  • The purchase of existing buildings;
  • The purchase of land and land improvements, including grading, street improvements, utilities, parking lots and landscaping;
  • The construction of new facilities or modernizing, renovating or converting existing facilities;
  • The purchase of long-term machinery* ; or
  • The refinancing of debt in connection with an expansion of the business through new or renovated facilities or equipment*.

*Note: The 504 Program cannot be used for working capital or inventory, consolidating or repaying debt, or refinancing (except for projects with an expansion component or that meet the temporary refinancing provisions of the Small Business Jobs Act of 2010).

Click here for more details about the SBA 504 loan program. Contact us today to see how an SBA 504 loan could be the right tool to finance the expansion of your growing business.

"We make a living with what we get, but we make a life with what we give." Winston Churchill