What is the 504 Loan Program?

504 Loans are typically structured with SBA providing 40% of the total project costs, a participating lender covering up to 50% of the total project costs, and the borrower contributing10% of the project costs. Under certain circumstances, a borrower may be required to contribute up to 20% of the total project costs.

Total 504 projects costs for a $1,000,000 project may include the following (eligibility requirements apply to the 504 portion of the project as well as the participating lending  portion):

• Building Purchase
• Land
• Renovation
• Furniture and Equipment
• Soft Costs
• TOTAL $1,000,000

Loan Structure

• $500,000, 1st lien with bank (loan obtained from a private sector lender covering up to 50% of the total project cost)
• $400,000, 2nd lien with 504 loan, 20 year, fixed rate (loan obtained through a CDC, funded through an SBA-guaranteed debenture, covering up to 40% of the total project cost)

$100,000, borrower contribution (contribution from the borrower of at least 10% of the total project cost)

The use of proceeds from 504 Loans must be used for fixed assets (and certain soft costs), including:

• The purchase of existing buildings;
• The purchase of land and land improvements, including grading, street improvements, utilities, parking lots and landscaping;
• The construction of new facilities or modernizing, renovating or converting existing facilities;
• The purchase of long-term machinery; or
• The refinancing of debt in connection with an expansion of the business through new or renovated facilities or equipment.

• Low Borrower Injection (as little as 10%)
• Up to 90% financing, to preserve working capital
• Fixed Rate up to 40% of Total Project Cost
• Low Market Interest Rates

• Reduced Risk with 50% Loan to Value
• First Lien Position on Assets Financed, and are Salable on the Secondary Market
• Saves A/R and Inventory for Additional Financing
• Enhanced Portfolio Diversity with CRA Qualified Debt

• Land and Building Acquisition
• Building Expansion
• Building Construction or Renovation
• Machinery and Equipment

The company must be a for-profit corporation, partnership, LLC, or proprietorship whose tangible net worth does not exceed $15 million, and whose average profit after tax for the preceding two years, does not exceed $5 million.

Private Lender: the maximum loan amount of the private lender is not limited by the SBA. However, the private lender must fund at least 50% of the total project cost.

Maximum Loan Amount (Debenture): While there is no maximum project size, the maximum SBA loan amount (debenture) is $5 million. Small manufacturers or specific types of energy projects (as described in the energy project section) may qualify for a $5.5 million debenture.

Generally, a business must create or retain one job for every $65,000 guaranteed by the SBA.  Small manufacturers must create or retain a ratio of one job for every $100,000.  As an alternative to job creation or retention, your business may qualify if it meets a community development or public policy goal as long as the CDC maintains its portfolio job average requirements. (More detail can be found on the SBA’s website).

Maturity Terms:

• 20 years for Real Estate
• 10 years for Long-term Machinery and Equipment

Interest Rate:

• Private Lender: Rate is negotiated with the small business owner
• SBA: Rate is fixed for the term of the loan

• Passive Investment Companies
• Real Estate Investment Companies
• Non-Profit Corporations
• Financial Institutions