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Important Info on SBA 504 loans
There are several things you need to consider when looking at whether or not SBA 504 loans will be the best option for your business's financial needs.
Terms and Rates
Typically, SBA loans through the CDC are either ten or twenty year term loans. The interest rate is going to change depending on what is happening with the prime interest rate at the time, but SBA CDC loans through the 504 loan program are always fixed rate loans. The fees for an SBA 504 loan are three percent of the total borrowed amount.
Loan Security
A section 504 loan is a secured loan. The business owner will need to place some of the business assets up as security for the loan. Also, the SBA places security for the loan.
Limits of 504 Loans
The maximum amount that is approved through the SBA 504 loan program is $4.0 million. This amount can be awarded to those who meet the qualifications of small manufacturers. Other types of SBA financing have an upper limit of $2.0 million. Typically the loan amounts are closer to $1 million.
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Use of CDC Loans
In order to qualify for CDC SBA 504 loans, the business needs to use the financing for specific purposes. The loans can be used to buy land or buildings for the small business. It can also be used for building improvements to existing structures (fixed assets projects), or to build new structures. If the building where the small business is located is older, the section 504 loan funds can be used to modernize the building. Finally, machinery or equipment that will be used by the business for its long term needs qualifies for section 504 financing. 504 money cannot be used as working capital, or for buying inventory.
Benefits of CDC 504 Loans
The main benefit of seeking financing through the CDC loan program versus conventional financing options is that the small business has the backing of the SBA on their loan. Also, getting a loan through this program only requires the business to put 10% down in most situations. The interest rate is typically low when compared to traditional financing options. Finally, the interest rate is fixed for the long term, so the business does not have to worry about their loan when the interest rates are changing.
Seeking 504 loans through CDC financing is a good way for a small business to get the financing needed for improvements that help the community. The 504 loan program should be one of your first considerations when you need financing for your small business.
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