In this article, we answer the question, “Are SBA 504 Loans Hard to Get?”
When it comes to loans for small businesses, funding through the Small Business Administration (SBA) is frequently regarded as the industry standard because the conditions are typically more favorable than those offered by other financing choices.
SBA loans, like those offered in the SBA 504 loan program, often have the lowest interest rates and the longest repayment terms, all while granting considerable loan amounts that small business owners may not otherwise qualify for in a conventional commercial or business loan.
If SBA loans come with such beneficial terms, many small business owners wonder — are SBA 504 loans hard to get?
To answer your question in a nutshell: No, obtaining an SBA loan is not difficult. The vast majority of small businesses qualify and getting approved is much simpler than you may imagine.
As always, we recommend consulting with an experienced commercial loan advisor to assist you with the SBA loan process.
SBA 504 loan background
The SBA 504 loan is a program that is intended to assist small businesses in expanding their operations through the purchase of fixed assets such as real estate and machinery.
Construction projects and improvements might also be financed with its help. An SBA 504 loan is available to the vast majority of for-profit enterprises operating in the United States.
There are a few requirements that must be met, but in general, the SBA 504 loan can be tailored to meet a diverse range of requirements for a company.
Bottom line – do not rule your business out just because you heard the process was difficult or took a long time to get approved. In most cases, these are over-generalizations.
Let's take a closer look at the administration of the loan before we move on to discussing the specifics of how to become prequalified for an SBA 504 loan.
How can you get an SBA 504 loan?
The structure of the SBA 504 loan is one of a kind due to the fact that it is a collaboration between a Certified Development Company (CDC) that administers the Small Business Administration (SBA) portion of the loan, and a conventional lender, like a bank or credit union. The goal of a CDC is to assist you in finding the loan product that will be most beneficial to the expansion of your company, ensure its continued success, and have a beneficial effect on the community in which it is located.
In the case of a standard SBA 504 loan, the SBA-guaranteed portion of the total funding would be forty percent, a participating lender, like a bank or credit union, would cover up to fifty percent of the total project costs, and the borrower would contribute ten percent of the total loan amount as a down payment or equity injection.
This 50-40-10 structure is the most usual loan breakdown, however in rare situations, such as if the property being acquired is a single-use property, the borrower may be asked to pay a 15% down payment. Yet in either event, this is a win-win situation. A small business owner taking out an SBA loan ensures a low down payment, the best interest rates on the market, and a payback period that lasts up to 25 years, which eases the strain of monthly payments.
SBA 504 Eligibility Requirements
To be eligible for an SBA 504 loan, your business must:
- Operate as a for-profit company in the United States or its possessions
- Have a tangible net worth of less than $15 million
- Have an average net income of less than $5 million after federal income taxes for the two years preceding your application
- Other general eligibility standards include falling within SBA size guidelines, having qualified management expertise, a feasible business plan, good character, and the ability to repay the loan.
Loans cannot be made to businesses engaged in nonprofit, passive, or speculative activities. For additional information on eligibility criteria and loan application requirements, small businesses and lenders are encouraged to contact an experienced commercial loan advisor.
How Can I Invest My SBA 504 Funds?
The majority of the time, SBA 504 loans are utilized to finance the acquisition of real estate, such as land and buildings; however, the funds may also be put toward the building, upgrading, or remodeling of commercial property. The SBA 504 loan program also enables business owners to finance equipment and other types of fixed assets, such as fixtures, furniture, and machinery with a service life of at least ten years. Some equipment financing examples include commercial printing equipment, medical & dental apparatus, and gym equipment.
In short, it is not difficult to acquire an SBA loan and the vast majority of for-profit organizations are qualified to apply for and get the funding they need through an SBA 504 loan.