The United States Government formed the Small Business Administration in 1953 to help businesses start and grow. The U.S. Small Business Administration or SBA has the goal of preserving free and competitive enterprise within the United States and is charged with maintaining the strength of our economy. The SBA offers a 504-loan program as a financing alternative for small businesses.

SBA 504 loans are a partnership consisting of the SBA, the small business applicant and a third party lender. Most commonly, 504 loans are for special projects. The loan works by dividing the amount lent between the third party lender, who gives about half the money, and SBA or one of its affiliates gives about 40% of the money. The remaining 10% remains the responsibility of the small business.

SBA 504 loans consist of three parts. The first part is the 50% that the third party lender provides. This loan does not carry all of the benefits of the 504-loan program. The third party lender determines the interest rate and term of this part of the loan. The SBA or one of its affiliates provides the second part, which is 40% of the total project. This second part of the loan cannot be more than two million dollars and must be for a term of 20 years or less. The final part of the loan is that which the small business provides. Unless the total cost of the project is higher than the amount the SBA can provide, the small business does not have to come up with more than 10% of the total cost unless it is a special use property.

Some of the benefits of a 504 loan include things like financed loan fees, lower down payments, and easier qualification terms. 504 loans can usually cover things like the purchase or renovation of a business buildings, the acquisition of land for improvements, and the purchase of long term equipment. Unfortunately, not all business will qualify for a 504 loan from the SBA.

In order to qualify for the SBA 504 loan, a business must be a profit making business. All non-profits are disqualified from these types of loans. The business also has to be worth no more than 7 million dollars and profit less than 2.5 million dollars a year for two years in a row. 504 loan applicants must be the primary users by 51% or more of the building they are financing, but if the loan is for the construction of a new building, the applicant must use at least 60% of the property.

Since the SBA is concerned with the expansion of jobs, 504 loan applicants must prove that at least one job will be created or retained for every $35,000 borrowed. Non-profit organizations, as well as banks or other lending institutions, real estate companies and other development companies are not eligible for the 504 programs.


The SBA 504 (Small Business Administration loan program) is specifically designed for small to middle sized businesses desiring to purchase commercial property. This type of loan is fairly complex, and any business man or woman considering it should research the topic and understand the various restrictions and qualifications for applying.

For example, one stipulation of this loan is that at least 51% of the property needs to be occupied within a year of taking ownership. Because of this stipulation, two operating companies sometimes form a holding company in order to meet requirements to take title of commercial properties. SBA loans offered by Griffin Capital Funding provide long-term fixed-rate financing and are geared toward projects that range between $150,000 and $10 million. An SBA 504 loan must not exceed 40% of the total project cost.

Those eligible for SBA 504 loans are for-profit businesses engaged in retail, wholesale, service and construction, as well as manufacturing industries. However, these businesses and their affiliates must meet various qualifying standards. Qualifying for the loan requires that borrowers be either US citizens or permanent residents, who own a majority of the company or holding company. Basically, an SBA 504 loan requires three eligibility factors:

  • Average net income must not extend past $2.5 million
  • The net worth of the operating company should be at or under $7.5 million
  • The projected size of the project must be greater than unencumbered liquid assets of the principles.

When properly prepared documentation is brought into the process, business owners find that the application process runs smoothly and efficiently, and saves them several points in interest rates. Many SBA 504 loans close within 60 days but may take longer depending on complexity and type of transaction. Griffin Capital generally issues preapproval within 24 to 48 hours and final decisions are often made within five business days.

Businesses that are not eligible to receive SBA 504 loans are nonprofit organizations, lending institutions, as well as life insurance companies or gambling businesses.

Eligible project costs include, but are not limited to, building construction, renovation and expansion, as well as building and land improvements, equipment acquisition, as well as professional engineering and architectural fees.

Ineligible project costs include, but are not limited to, refinancing debt, vehicles such as airplanes, automobiles and trucks, moving costs, working capital, and bank fees for end loans although other types of SBA loans can be offered in conjunction with a 504 loan to cover these costs.

SBA loan terms can be found to range from 10 to 20 years for real estate and equipment, but most commonly, equipment loan terms require repayment within 10 years and commercial real estate within 20 years. Interest rates are fixed for the full term of the loan, and other issues such as prepayment, collateral, and credit criteria differ per transaction.

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