Business Loans

The 504 Loan Program provides financing for long-term major fixed assets at a fixed rate. It is offered through a Certified Development Company (CDC). A CDC is a non-profit corporation that works with the SBA and private lenders to provide capital for small entrepreneurs.  The deals have the following structure: a private lender with a senior lien on the property funds 50%; the CDC (backed by the SBA) funds 40% with a junior lien, and the entrepreneur funds 10%.

The SBA also offers special-purpose loans, although these are much less common and harder to get. Please check the SBA Website for more information on any of the aforementioned programs.

CDC Fund Uses

The applicant can use CDC funds for purchasing land, facilities, and improvements including:

• Construction of new facilities.

• Modernizing or fixing existing facilities.

• Long-term machinery or equipment.

• Existing buildings.

• Utilities.

• Parking lots and landscaping.

• Grading.

• Street improvements.

504 Loan Limitations

The applicant cannot use the loan proceeds for:

• Working capital.

• Inventory

• Consolidating debt.

• Refinancing debt.

504 Loan Size and Eligibility Requirements

Under the CDC 504 loan program, the business qualifies if:

• It is a for profit business,

• The net worth of the business is under $7 million, and

• The average net income is under $2.5 million after taxes for the last two years.

Interest Rates, Fees, and Maturity of 504 Loans

• Rates for 504 loans are an increment over the five-year and ten-year U.S. Treasuries.

• Fees are 3% of the debenture and can be financed with the proceeds.

• The loan can have maturities of 20 years for real estate and ten years for machinery.

Maximum Disbursement Amounts

The maximum disbursement is $1.5 million for job creation criteria or community development goals. In general, a business must retain or create a job for every $50,000 provided by the SBA, except for small manufacturers who have a $100,000 per job requirement.

The maximum disbursement is $2 million for a public policy goal, samples of which include:

• Revitalization of business districts.

• Export expansion.

• Development of rural areas.

• Expansion of minority-owned businesses.

• Increasing productivity and competitiveness.

• Federally mandated restructuring.

• Changes due to federal budget cutbacks.

• Expansion of veteran-owned businesses.

• Expansion of women-owned businesses.

The maximum disbursement for a small manufacturer is $4 million; to qualify, the manufacturer must meet the following criteria:

• The production facilities must be in the United States.
• The manufacturer must meet the definition of “small manufacturer” under the North American Industry Classification System (NAICS) codes 31, 32, or 33 (http://www.census.gov/epcd/www/naics.html).
• The manufacturer must either create or retain a job per $100,000 of disbursed funds, improve the economy of the community, or achieve one or more public policy goals.

Collateral and Personal Guarantees for a 504 Loan

The project assets are used as collateral, and the applicants must provide a personal guarantee.

504 Loan Guidelines for Existing Businesses

Existing businesses must be able to provide the following:

• Cash flow analysis, both projected and historical.

• Fixed obligations (including proposed 504 loan).

• Three years of tax returns.