The Advantages of Using an SBA 504 Loan

The Small Business Act (SBA) has set up a special kind of loan program known as the SBA 504 loan program. It's specifically set up for businesses that are either having a hard time getting a loan, wants a higher loan to value then they can get conventionally, or both. The SBA 504 loan is a guaranteed loan, but this doesn't mean that the borrower can simply stop paying on it. Typically a SBA 504 structure includes a loan secured with a senior lien from a lender covering up to 50% of the project cost, a loan secured with a junior lien from a Certified Development Company (CDC) (backed by a 100% SBA-guaranteed debenture) covering up to 40% of the cost, and a contribution of at least 10% equity from the borrower.

90% Financing: Most of the time, when a small business is trying to do something like buy a new facility, they have to be prepared to pay at least 25% of the total price. This means that only 75% of the cost can be financed. However, with SBA 504 loans, a small business can finance up to 90% of the total cost. 10% might not seem like a huge sum, but it is when you're talking about hundreds of thousands of dollars. For example, if a business needs $1 million in order to purchase and renovate a new facility, then any loan other than a SBA 504 loan would require at least $250,000 from the borrower rather than just $100,000.

There are other advantages to SBA 504 loans, like the fact that SBA 504 loans close within 45 days rather than 60, 90 or more days as with other loans. Also, 504 loan payments don't balloon as other loan payments do and, in order to obtain a 504 loan, you have to deal with a specialist. That means that unlike other loans programs, you will be able to ask and get quick and correct responses for whatever questions you might have about the 504 loan process. This is especially important, because a loan is not something to have doubts about, especially when it's a loan that will either make or break your small business.

SBA 504 loans are for businesses that want to leverage up to 90% financing or businesses that are having difficulty securing conventional financing. If your business can prove that it does not have the internal resources that it needs in order to make the payment on the upgrades to its facilities, buy more facilities in order to move, restructure, to grow or buy equipment and machinery that will keep it going or make it better, then you can apply for a SBA 504 loan. The SBA 504 is set up particularly to help small businesses that help or benefit their local community or create valuable jobs. The United States Government understands that small businesses are the backbone of the American economy and this is why they've created special loan programs like the SBA 504 and the SBA 7(a).