The SBA 504 loan program provides growth financing with a low down payment. Coming up with a down payment of 20% or more plus closing costs usually knocks many small businesses out of the running for expansion financing. But there is another way. For a healthy business whose expansion plans call for the investment and use of real estate or equipment, there is a way to qualify for 90% financing through the SBA 504 Loan Program.

The 504 Loan Program offers the following key advantages:

  • Low down payment which conserves a businesses’ operating capital;
  • Competitive, fixed interest rate thereby stabilizing the company’s interest expense for fixed assets;
  • Long term financing which matches the asset being financed with the cash flow generated by the asset.

The participating bank benefits by providing 50% of the permanent financing for the fixed asset and receives a 1st lien position on the entire project being financed. The SBA 504 permanent financing which can be up to 40% of the total eligible project, subordinates to the participating bank in a 2nd lien position. The Borrower contributes as little as 10% including eligible closing costs.

The SBA financing portion, called Debentures (bonds), are issued by CDCSW and sold in the private bond market to fund the 504 portion of the financing. These bonds are fully guaranteed by the US Small Business Administration.

504 Loan Structure

The 504 option consists of a collaborative deal structure with the participation of a bank or other financial institution, the CDCSW and the business owner. A typical project is structured as follows:

Project Costs
Source
Lien
Funding Limits
Rate
Term Real Estate
Term Equipment
50%
Financial Instruction
1st
No Limit
Market
10 Yrs or longer
7 Yrs or longer
40%
CDCSW
2nd
Min: $50,000
Max: $5,500,000
$5,000,000 (Public Policy Projects)
$5,500,000 (Manufacturing & Energy Efficiency Projects)
Fixed
20 Yrs
10 Yrs
10%
Borrower
 
 
 
 
 

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NOTICE: IMPORTANT INFORMATION ABOUT IDENTIFICATION PROCEDURES WHEN OBTAINING A 504 LOAN

To help the government fight the funding of terrorism and money laundering activities, Federal law requires all Certified Development Companies to obtain, verify, and record information that identifies each person who applies for a 504 Loan.

What this means for you: When you apply for a 504 Loan, we will ask for your name, address, date of birth, and other information that will allow us to identify you. We may also ask to see your driver’s license or other identifying documents.