What are SBA 504 loans?
The Small Business Administration 504 Loan Program is a long-term financing tool that promotes economic development within a community. The SBA 504 Program provides small businesses with long-term, fixed-rate financing to acquire major fixed assets such as real estate or machinery and equipment for expansion or renovation. The small business is able to obtain up to 90% financing on these assets. Typically, the financing structure is as follows:
|Source||% of Project||Lien Position||Interest Rate & Term||Maximum Loan|
|CDC New England||40%||2nd||20 years fixed Real Estate or 10 years fixed Equipment||$5,000,000 ($5,500,000 per project for manufacturers and green projects)|
Use of Purchase
Proceeds from SBA 504 loans can be used for any of the following:
- Purchase of land and improvements, including an existing building
- Construction of a new facility
- Modernizing or renovating an existing facility
- Providing leasehold improvements
- Purchase of machinery and equipment with a minimum useful life of 10 years
- Other soft costs associated with any of these aforementioned projects
To be eligible for the SBA 504 Loan Program, an applicant must be a for-profit organization and fall within the size standards set forth by the SBA. The business qualifies as small if it does not have a tangible net worth in excess of $15 million and does not have an average net income after taxes in excess of $5 million for the preceding two years. Other criteria include:
- The project must retain one job for each $65,000 of debenture assistance. If this is not satisfied there, is a list of other economic development goals that can apply (rural development, woman/veteran owned business etc).
- The project must be used by the operating company whether it be real estate or a piece of equipment.
- Buildings must be operated by at least 51% of the total space.
- If the building is a new construction, the operating company(ies) must occupy at least 60% of the space and must occupy 80% of the facility at the end of the 10th year. The remaining 20% may be leased permanently to unrelated tenants.
- Eligible operating companies include:
- Limited Liability Company
- Producers’ Cooperative
- Realty trusts, partnerships, and S-Corporations may be the borrower and lease the property to the operating company.
- Non-profits, investment firms, financial institutions, most gambling facilities, or businesses dealing with prurient sexual nature. See a full list in our FAQs.
CDC New England’s partner, BDC Capital, allows us to offer a suite of other financing products to complement the SBA 504 Program, including asset-based lines of credit, term loans, mezzanine investments, and bridge and down payment financing. Visit BDC Capital’s website to learn more.