The SBA’s 504 loan program is designed to provide assistance for small-business owners. It is an ideal solution for those individuals seeking a long-term, fixed rate financing option for the purchase of major assets.

Per the SBA, certain business activities do not qualify for funding under the 504 program. In particular, those pertaining to sex, gambling or loan brokering are prohibited. Farming businesses may also be ineligible if they are located in a MSA with a population of 25,000 or greater. However, those qualified are offered a multitude of options in regard to terms, fees and interest rates. Collateral for the loan generally requires that all real estate, property and equipment owned, or to be purchased, be included on the application. Applicants may not exceed a net worth of $7.5 million. Furthermore, average net income should not exceed $2.5 million after taxes in the two years prior to application.

Proceeds from funds borrowed may be used for the following purposes:

  • Purchase Land / Property
  • Improve Land / Buildings
  • Upgrade Facilities
  • Facility Additions
  • Building Renovations
  • Equipment Purchases

SBA 504 loans may not be used as working capital or to repay debt, refinance, or consolidate other loans.

These loans are generally secured with liens by private-sector lenders that cover up to 50% of project costs. The remaining funds may come through the sale of a debenture by the SBA. Requirements for a qualifying small business loan may also call for business profiles, loan request amounts, a description of collateral desired, and basic financial statements to be included with the application.

Other documents required will include three years of balance sheets, income statements and cash flow projections. The lender may also wish to see all accounts receivable and payable from the last 90 days. Financial statements will include personal records, as well as the applicant and any business partner’s tax returns for the past three years. These statements should clearly list personal assets, liabilities and monthly payments due. In addition, a one year projection of operations should also be provided. As a final measure, it is also recommended to have all contracts, licenses and agreements on hand in the event they are needed.

While the necessary documentation requires time to accumulate, the qualifying standards under the SBA program offers greater flexibility than other options. Be sure to ensure adequate information is on hand early-on, as this will ultimately save time and ensure your application progresses smoothly.

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