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.
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 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.
An example of how a typical 504 loan is structured follows:
Total 504 projects costs for a $1,000,000 project may include the following (eligibility requirements apply to the 504 portion of the project as well as the participating lending portion):
The use of proceeds from 504 Loans must be used for fixed assets (and certain soft costs), including:
*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). See also “Program Updates” at the bottom of the web page. Learn more here
The 504 Loan program offers small businesses both immediate and long-term benefits, so business owners can focus on growing their business. Some of the top-level benefits include:
To be eligible for a 504 Loan, your business must be operated for profit and fall within the size standards set by the SBA. Under the 504 Program, a business qualifies if it has a tangible net worth not more than $15 million, and an average net income of $5 million or less after federal income taxes for the preceding two years prior to application.
Loans cannot be made to businesses engaged in nonprofit, passive or speculative activities. For additional information on eligibility criteria and loan application requirements, small business and lenders are encouraged to contact a Certified Development Company in their area.
Maximum Loan Amount (Debenture)
While there is no maximum project size, the maximum SBA loan amount (debenture) is $5 million. Small manufacturers or specific types of energy projects (as described in the energy project section) may qualify for a $5.5 million debenture.** Generally, a business must create or retain one job for every $65,000 guaranteed by the SBA. Small manufacturers must create or retain a ratio of one job for every $100,000. As an alternative to job creation or retention, your business may qualify if it meets a community development or public policy goal as long as the CDC maintains its portfolio job average requirements. These include:
Community Development Goals:
Public Policy Goals:
Modernizing or upgrading facilities to meet health, safety, and environmental requirements;
**Contact your CDC or local SBA District office for additional details.
Generally, the project assets being financed are used as collateral. Personal guaranties from owners of 20% or more are also required.
Interest Rates and Fees
Interest rates on 504 Loans are correlated with the current market rate for 5-year and 10-year U.S. Treasury issues. Loan maturities of 10 and 20 years are available. Fees may be financed with the loan.