SBA 504 Loan Program

Small Business Administration 504 Loan Program

The SBA 504 Loan Program was created to promote economic development by helping growing businesses get financing so they could acquire long-term fixed assets such as land, building, machinery and equipment. Typically, a borrower is required to make a 10 percent down payment on a Small Business Administration loan. Cen Cal will finance no more than 40 percent of the project cost and a third-party lender or bank finances the remaining 50 percent of the loan.

These loans can also include the construction, modernizing, renovating or restoring of facilities. The SBA has certain eligibility requirements which include that these assets must be used principally to buy your business and that they will enable you to create or retain jobs.

Why 504?

The 504 Loan Program gives established small business owners access to low-cost, fixed rate, long term financing that is typically enjoyed by much larger businesses.

Usually, a 504 Loan will minimize your down payment and maximize the term of your loan, all at a low fixed interest rate, and often below market rates.

How Does 504 Work?

504 applications can only be processed by Certified Development Companies, like Cen Cal Business Finance Group.

However, because Cen Cal is a Premier Certified Lender, we have the SBA's authority to approve and fund a 504-application without presenting to the Small Business Administration.

When you apply for an SBA 504 loan through Cen Cal, we work with the third party lenders, preparing all required documentation and process the application through approval. Then, after approval, we will close and service your loan.

Financing

When construction is necessary, Cen Cal works with business owners and helps them arrange temporary loans that cover construction costs through a third party lender. This short-term loan is eventually paid off by the long-term, permanent SBA loan.

The typical 504 loan is structured like this:

• a third party lender finances 50% of the project cost
• 40% is financed by the SBA
• and the borrower making a 10% down payment.

There is no limit to the loan of the third party lender.  The SBA loan cannot exceed $1.5 million unless a public policy goal is met or the borrower is a manufacturer.  (A list of the various public policy goals is itemized below).  Other limitations of the SBA loan are as follows:

1. The SBA loan cannot exceed 40 % of the project cost.
2. The SBA loan cannot be more than the loan of the third party lender.
3. If the project meets a public policy goal, the maximum SBA loan amount is increased to $2 million.
4. If the borrower is a manufacturer, the maximum SBA loan amount is increased to $4 million. 

Public Policy Goals:

1. Rural development-A project located in any political subdivision or unincorporated area in a non-metropolitan county.
2. Business district revitalization-A project located within a business area of a community with a recognized revitalization or redevelopment plan that encourages business development.
3. Expansion of exports-10% or more of sales is exported at the time of the project or will be 10% of sales as a result of the project.
4. Minority-owned business-The small business concern must be at 51% unconditionally owned and controlled by an individual(s) who is a member of a group identified as a minority.
5. Enhanced economic com petition-A project which increases a small business’s competitiveness through advancement of technology, plant retooling (expansion or modernization of manufacturing facilities), or conversion to robotics.
6. Changes necessitated by Federal budget cutbacks-A project that assists a small business that is located in or is locating into an area impacted by Federal budget cutbacks, such as facility closings or cutbacks in defense-related industries.
7. Business restructuring from federally mandated policies affecting the environment, employee safety or health-A project that enables the business to meet requirements to improve the environment, safety or health of employees, such as pollution control equipment or removal/encapsulation of asbestos, or that assists a small business that provides environmental services. 
8. Expansion of small business concerns owned and controlled by veterans.

Please contact us to find out more on how we can structure an SBA 504 loan for you.