Understanding SBA 504 Loan Terms

The SBA 504 loan program is a powerful tool designed to help small businesses acquire commercial real estate and long-term fixed assets. At Owens Capital, we specialize in providing SBA 504 loans with favorable terms and structured financing options. Here are the key aspects of our SBA 504 loan terms:

1. Loan Structure:

  • SBA 504 loans are structured as a partnership between a Certified Development Company (CDC), a traditional lender (typically a bank or credit union), and the borrower. The loan is divided into:

    • 50% from a conventional lender

    • 40% from a CDC backed by the SBA

    • 10% borrower's down payment

  • This structure reduces the lender's risk and offers lower down payments for borrowers.

2. Loan Amounts:

  • SBA 504 loans can finance up to 40% of a project's total cost, with maximum debenture amounts typically ranging from $5 million to $5.5 million. The total project cost includes eligible expenses such as land acquisition, construction, and renovation.

3. Interest Rates:

  • Interest rates on SBA 504 loans are typically fixed for the life of the loan, providing stability and predictability in monthly payments. Rates are competitive and determined at the time of debenture sale, based on market conditions.

4. Loan Term:

  • The loan term for SBA 504 loans varies depending on the use of funds:

    • Up to 10 years for equipment

    • Up to 20 years for machinery and real estate

  • This extended term allows businesses to match repayment schedules with the useful life of the assets being financed, optimizing cash flow management.

5. Use of Funds:

  • SBA 504 loans are specifically used for:

    • Purchasing real estate: Including land and existing buildings, as well as improvements.

    • Constructing or renovating facilities: For expansion or modernization of business operations.

    • Purchasing machinery and equipment: Including heavy machinery, vehicles, and specialized equipment.

6. Eligibility Criteria:

  • Eligibility requirements for SBA 504 loans include factors such as being a for-profit business, operating primarily in the United States, and meeting specific size standards set by the SBA. Our team assists you in navigating eligibility criteria and application requirements.

7. Application Process:

  • Our experienced SBA loan specialists guide you through the SBA 504 loan application process, ensuring all necessary documentation is prepared and submitted accurately. The process involves completing an application, providing financial statements, and meeting with lenders and CDC representatives to discuss your business plan and project details.

8. Benefits of SBA 504 Loans:

  • Lower Down Payments: SBA 504 loans require a lower down payment (as low as 10%) compared to conventional loans, conserving your business's capital for other operational needs.

  • Long-Term Fixed Rates: Enjoy long-term fixed interest rates, providing stability and protection against interest rate fluctuations.

  • Improved Cash Flow: Structured repayment terms allow for manageable monthly payments, supporting your business's cash flow and financial planning.

Get Started Today

Ready to explore SBA 504 loan options for your small business? Contact us today to discuss your financing needs and discover how our SBA 504 loan terms can help you achieve your business expansion and real estate goals with confidence.