What Real Estate Properties Qualifies for a SBA 504 Loan

To be eligible for a SBA 504 loan the borrowers business must be set up as a for profit business and also must fall within the size standards set by the SBA. The size standards set by the SBA dictate that the business must not have a tangible net worth in excess of $7.5mm and must not have an average net income in excess of $2.5mm after taxes for the preceding two years. Businesses that are not eligible for SBA 504 loans are ones that exceed the size standards, those that are non-profit, illegal businesses, businesses owned by foreigners or those located in foreign countries, as well as lending institutions, to name a few.

Any real estate property that might serve the purposes of expanding, relocating, reorganizing or restructuring the business and is owned by more than half citizens or permanent residents qualifies for a SBA 504 loan. In order to ensure that your business and the real estate it hopes to obtain does qualify for a SBA 504 loan, consult a specialist that deals particularly with the SBA and its 504 program. There are many lenders throughout the country that provide these types of business loans and they are more than ready and capable of assisting your business.

SBA 504 loans are the best solution for small businesses because they allow businesses 90% financing. Most other loans require businesses to come up with at least 25% of the total cost of their projects plus expensive closing costs. If your business does not have good credit or any credit at all, or if you aren't currently producing the kind of money that you could be producing if you could get a loan to expand with, then the SBA loan is perfect for your business.

SBA 504 loans are broken up in the following way: 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. This does not mean is that the borrower can just quit paying and forget about the loan. The guarantee is between the CDC and the SBA - the borrower is still responsible for 100% of the money borrowed both from the CDC and the other lending institution. This is why SBA 504 loans are easier to obtain than any other loan.

When looking for such loans, search for lenders who specialize in them - doing so will help streamline the process and provide you with better service and options.