Five Quick Facts About the SBA 504 Loan Program

Insufficient cash flow stifles business growth. Expanding into new markets, introducing new products, and replacing outdated equipment are just a few critical tasks that require working capital. Without it, strategic plans are often delayed or even abandoned. Fortunately, small business owners have options that don't require dipping into their cash reserves in order to achieve certain business objectives.

Here are five facts about U.S. Small Business Administration (SBA) 504 loans that make them an attractive option for owners looking to grow their businesses.

1. SBA 504 loans must be used for a specific purpose.

The SBA offers several loan options for qualified borrowers. The SBA 504 loan program is one such program. It's designed for small businesses that intend to purchase large equipment or owner-occupied commercial real estate. In some cases, funds may be used to refinance these types of long-term, fixed assets at an interest rate lower than those offered with traditional business loans.

2. SBA 504 maximum loan amounts hover around $5 million.

Generally, SBA 504 loan amounts are capped at $5 million, but specific projects may receive loan approval for up to $5.5 million. Small businesses exploring a facility expansion could use these high loan limits to purchase commercial real estate, along with the heavy equipment to fill the new space.

3. SBA 504 loans offer fixed interest rates and multiple repayment terms.

Interest rates are typically below-market and remain the same over the life of the loan. This makes managing cash flow and planning other strategic initiatives less complicated. Plus, repayment terms vary depending on the use of funds. For example, you could take up to 10 years to repay funds used to buy heavy equipment or up to 25 years to repay funds used to purchase real estate.

4. SBA 504 loans involve more than your preferred financial institution.

A Certified Development Company (CDC) is a nonprofit corporation authorized by the SBA that encourages economic development in the community. As such, they typically streamline the entire loan process while also participating in the funding of the loan along with your preferred SBA lender. CDC commercial loan officers submit the loan paperwork to the SBA on your behalf and track it all the way to disbursement.

5. SBA 504 loans have low down payment requirements and minimal fees.

It's possible to finance your growth strategy while conserving your cash reserves. In many cases, a down payment of 10% is required to process the loan. The remaining 90% is funded by a designated CDC and the SBA lender of your choice.

CDC commercial loan officers structure project financing to include contributions from three parties:

• Bank or credit union – 50% (conventional first mortgage)
• CDC – 40% (SBA-backed second mortgage)
• Small Business Owner – 10% (down payment)*

The above 50%, 40%, and 10% financing structure is a typical scenario, which can vary depending on the project.

For example, Wigits & Company secures a $500,000 SBA 504 loan to cover the cost of new heavy equipment and technology upgrades. The funding package would require:

• Town and Country Bank and Peoples Prosperity Bank financing = $250,000
• CDC financing = $200,000
• Wigits & Company down payment = $50,000

Borrowers must pay an application fee. Other costs are typically rolled into the loan.

As an SBA Preferred Lender and community bank that specializes in commercial lending, Town and Country Bank and Peoples Prosperity Bank can help you discover whether a low, fixed-rate SBA 504 loan is a good financial fit for your business objectives. Speak with a member of our business lending team by requesting a Business Financial Review or visiting one of our 12 conveniently located branches today!

*Some situations may require a borrower contribution of up to 20%.