SBA 504 Loan Program
The SBA 504 loan program is an ideal way to save much-needed working capital when making a fixed-asset acquisition. With an SBA 504 loan you can finance up to 90 percent of the project's total cost and lock into a low 20-year fixed rate.
With the SBA 504 loan and its low 10 percent down payment provision, a business owner can retain additional funds to help cover a number of unforeseen expenses that may result from such a move. In addition, most of these acquisitions are a direct result of increased business opportunities. The lower equity injection keeps cash available to help support the continued expansion of the business.
For example, a $500,000 investment in a new building will allow the owner to save $50,000 in equity (versus the typical $100,000 required under conventional financing) that can then be used for a number of business related needs.
Examples of Fixed-Assets Eligible for an SBA 504 Loan
Nearly any project involving the purchase, construction or improvement of fixed assets is eligible for SBA 504 financing:
- Land acquisition
- Building acquisition
- Building renovation
- Building construction
- Purchase of heavy machinery and equipment (new or used)
Almost any type of business is eligible: manufacturer, distributor, retailer, service company, etc. Startups as well as existing businesses are eligible.
Business Benefits of an SBA 504 Loan
- Low down payment - usually 10 percent
- Preserve your company's cash for working capital
- Competitive interest rate - don't pay more than necessary
- Fixed-interest rate for the term of the loan - typically 20 years
- Locked-in rate allows your company to better protect against interest rate fluctuations
- Asset may be owned by a "passive entity" and leased by the operating company - position yourself for an additional tax benefit
- Financing that fits project sizes from $125,000 and up - the financing flexibility your growing company needs
How a Project is Typically Funded
- Bank: 50 percent of project's total cost
- SBA: 40 percent of project's total cost
- You/Your Company: 10 percent down payment