SBA 504 Loans: Commercial Property Financing

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Small Business Administration SBA 504 loans can be used to help you purchase the commercial property you need for your small business. The interest rate is fixed and the term can be for up to 25 years. When you use the SBA 504 program, you will be able to plan for the future of your business without having to worry about interest rates or short-term loans.

SBA 504 Loan Structure

The SBA 504 loan is financed by a bank and a Certified Development Company, or CDC. The bank finances 50%, the CDC finances 40%, and the business owner puts down 10%. The CDC portion of the loan is guaranteed by the SBA, up to $2 million, or $4 million for a manufacturing business.

The loan terms make the SBA 504 an attractive loan for a small business owner. The bank will finance their portion of the loan for 10 to 25 years. The interest rate and loan fees you pay are determined by the bank, however you can negotiate these or shop other lenders if you are not satisfied with the offer.

The CDC will finance their portion of the loan for 10 to 20 years. The interest rate you pay is based on five and ten year U.S. Treasury notes. The loan fees are included in the loan, and are roughly 2.125% of the principal you are borrowing plus a one time legal fee.

SBA 504 Loan Eligibility

To be eligible for the SBA 504 loan your business has to be operated by you for profit, and set up as a sole proprietorship, corporation, partnership or a limited liability corporation, or LLC. The net worth must not be more than $8.5 million, and your net profit after taxes must be under $3 million in the last 2 years of operation.

You must use the property you are purchasing as collateral on the SBA 504 loan, and also sign a personal guarantee for the full loan amount.

SBA 504 Loan Benefits

One of the major benefits of the SBA 504 loan is you only need 10% down to purchase the property. You can maintain your cash flow and still buy the property you need to help your business continue to grow. Also, since the loan is for an extended term at a fixed interest rate, there are no potential refinances to worry about like with many short term commercial loans.

You can include any costs related to your property purchase in the SBA 504 loan amount. For example, appraisals, zoning costs and engineering fees all can be added to the SBA 504 loan amount.

Another benefit that can help you in the future is if you decide to sell the property due to the growth of your business, the SBA 504 portion of the loan is assumable if the buyer is eligible. This may help you get a better price since the buyer may be able to save on the financing.