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 |
|---|---|---|---|---|
| Bank | 50% | 1st | Market | No maximum |
| 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) |
| Borrower | 10% | - | - | - |
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
Where We Lend
Please click here to view the territories in which we lend.
Eligibility
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:
- Corporations
- Partnerships
- Proprietorship
- Limited Liability Company
- Producers’ Cooperative
- Realty trusts, partnerships, and S-Corporations may be the borrower and lease the property to the operating company.
Ineligible Businesses
- 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.
