What are the main advantages of the SBA 504 Loan?
How is an SBA loan structured?
Most 504-financed purchases are for office, retail or industrial buildings. SBA 504 Loan, fixed-rate loans finance 40 percent of the total purchase. A bank or other lender provides 50 percent and the business owner contributes a 10 percent down payment. For example, if the building purchase price is $500,000, the following would be the loan structure:
How long it usually take to get an SBA loan funded?
Straight purchases usually require no more than 60 days to fund. If construction is involved, this can extend the process.
What are the fees involved?
Fees vary by deal size and range from $3750-$5,000. Additional fees may apply if specific documents are required to be reviewed such as a land lease.
Are there any prepayment penalties?
There is a declining prepayment penalty for the first ten years of the loan, based on the loan amount and funding rate.
Can other costs be included in the SBA 504 Loan?
Yes, “soft costs” (e.g. appraisals, environmental, construction interest, closing costs) can also be financed in the 504 loan, allowing the small business to preserve working capital.
What is the minimum loan amount you can borrow with an SBA 504?
SBA-504 loans can finance up to 40% of the total project cost, or $5 million. For manufacturing businesses, 504 loans can finance up to $5.5 million.
How big can the company be?
The business’s tangible net worth must be less than $15 million. After-tax net profit must be $5 million or less, on average, for the prior two years.
How much space does the business have to occupy?
The business must occupy 51% of an existing building purchase or 60% if constructing a new facility.
What kind of equipment can be financed with an SBA 504 Loan?
Long-term machinery and equipment with a useful life greater than ten years (e.g., a printing press).
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