Before applying for a loan from the Small Business Administration (SBA), it is important to consider the various pros and cons of each type of SBA product. Generally, there are two types of SBA Loans: the 504 Loan and the 7(a) Loan. Each loan has different benefits that can help small business owners grow and maintain their business. In our previous post, we examined 7(a) loans. In this post, we will examine the 504 Loan.

The 504 Loan is actually two separate loans: one is a loan from an authorized banking institution and the other is a loan from a Certified Development Company (CDC). A CDC is a non-profit corporation that’s main purpose is to support economic growth in local areas. The banking institution will usually lend 50% of the total loan amount, while the CDC will contribute between 30-40% of the loan amount. The SBA usually requires the Borrowers contribute a down payment equal to 10-20% of the purchase price.

Personal guaranties of principal Borrowers are required, if a Borrower owns 20% or more of the business. The term of an 504 loan is usually 20 years for a loan for a real estate purchase or 10 years for a loan for the purchase of long-lasting, fixed equipment.

504 Loans are generally available for the acquisition of real estate property, the financing of construction or building improvements, or the purchase of heavy machinery or equipment. Generally, a 504 Loan does not collateralize assets outside of the assets that the 504 Loan is providing funding for.

One important thing to note is that a 504 Loan cannot be used for working capital, to purchase inventory, or to consolidate, repay, or refinance any existing debt.

If you are interested in speaking to someone about 504 Loans, we can provide you with a great referral. Give us a call at 770-881-8081 to discuss your lending needs.