The purpose of the SBA 504 Loan Program is to provide healthy, expanding businesses with long term below market rate financing for the acquisition of land and building, machinery and equipment and construction and renovation. The 504 Loan Program, established by Congress in 1986, is the first national financing program to recognize contributions of small and medium sized businesses toward local economic development and job growth in the U.S. This financing is specifically designed to meet those needs. Businesses can access the 504 Loan Program through Capital Solutions in conjunction with Foundation Capital, a certified SBA Community Development Company. 

This program requires a first lien loan by a private lender, with SBA participating on a second lien basis through a direct loan facilitated through Capital Solutions/Foundation Capital.

• Comercial loans for healthy expanding businesses.
• Fixed rate below market financing.
• Financing for fixed assets: real estate, machinery and equipment.
• Terms of 20 years for real estate, 10 years for machinery and equipment.

Eligible Borrowers

• For profit businesses (corporation, partnership or proprietorship)
• Tangible net worth not to exceed $8.5 million
• Net profit after taxes not to exceed $3.0 million during previous 2 years
• Owner occupied property only- no income producing or investment properties
• Those meeting certain Public Policy, Community Development and/or job creation goals

Maximum Amount

Up to 40% of eligible cost, with a $2,000,000 debenture maximum depending on certain variables. Manufacturers are eligible for up to $4,000,000. Total project size is unlimited.

Use of Funds

• Purchase of land
• Construction of building
• Modernization, renovation or improvement of building
• Purchase of machinery or equipment with useful life of 10 years or more
• Soft costs directly associated with the project
• Refinance is not eligible

Financing Method

Private lender provides 50% of project cost, and the Small Business Administration 504 Loan provides 40%.

Equity Requirements

At least 10 percent.

504 Loan Terms

• Maximum of 40 percent of project
• Terms of 20 years for real estate, 10 years for machinery and equipment. 504 loans are fully amortized.
• Fixed, below market interest rate.
• Majority of up front fees have been temporarily eliminated due to the Stimulus Plan. Most closing expenses can be included in the 504 loan amount and financed over a 20-year term.

Term: Maturities of 10 and 20 years are available on the 504 debenture, depending on the useful life of the assets. A minimum of 10 years is required from the private lender on real estate financing and 7 years on machinery and equipment.

Collateral: Second Mortgage and / or lien on assets purchased with proceeds of 504 loan.

Personal Guarantees: Personal guarantees of the principals (ownership of 20% or more) are required. Corporate Guaranties are also required.

Down Payment: The small business concern must provide at least 10% of the project cost as equity or subordinated debt. New businesses and special purpose properties to provide additional equity.

Typical Structure:

• 50% first mortgage from private lender
• 40% second mortgage from SBA
• 10% equity or subordinate debt

Project Example

Entity	Loan Amount	Percent of Project	Term	Interest	Collateral
Private Lender	$500,000	50%	10 years	Market	1st Deed of Trust
CDC/SBA	$400,000	40%	20 years	Market	2nd Deed of Trust
Business/Borrower	$100,000	10%	n/a	n/a	n/a