SBA 504: Real estate, Equipment, and other Fixed Assets Loans

An SBA 504 loan is a long-term, fixed-rate loan that helps small businesses finance the purchase of major fixed assets like land or buildings. These loans are guaranteed by the U.S. Small Business Administration (SBA) and typically have lower down payments, longer repayment terms, and lower interest rates than other types of financing.  To be eligible for an SBA 504 loan, businesses must meet certain size requirements. They must also be for-profit and located in the United States.

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The SBA 504 program is administered by Certified Development Companies (CDCs). CDCs are private, non-profit organizations that work with the SBA and lenders to provide financing to small businesses.

What Are 504 Loans Used For? 

SBA 504 loans are best for small businesses that are looking to finance major fixed asset purchases, such as real estate or equipment. These loans have lower down payments and longer repayment terms than other types of financing, which makes them a good option for businesses that may not qualify for traditional bank financing. 

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SBA 504 loans can be used for a variety of purposes, including: 

• Purchasing or renovating real estate 
• Purchasing equipment or machinery 
• Financing energy efficiency improvements 
• Creating or expanding manufacturing facilities 

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There are several benefits of SBA 504 loans, including: 

• Lower down payments: SBA 504 loans have a lower down payment requirement than other types of financing, making them a good option for businesses that may not have the capital for a traditional bank loan. 
• Longer repayment terms: SBA 504 loans have longer repayment terms than other types of financing, which can help businesses keep their monthly payments low. 
• Fixed interest rates: SBA 504 loans have fixed interest rates, which means that your payments will not increase over time. 
• Lowered costs: SBA 504 loans can help businesses save money by financing energy efficiency improvements. 
• Increased access to capital: SBA 504 loans can help businesses that may not qualify for traditional bank financing to access the capital they need.

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How Do SBA 504 Loans Work? 

SBA 504 loans are typically structured as follows: 

• 50% funded by a conventional lender 
• 40% funded through the sale of bonds by a Certified Development Company (CDC) 
• 10% equity from the small business borrower 
• CDC's are nonprofit organizations that promote economic development in their communities. They work with the SBA and private sector lenders to provide financing to small businesses. 

The maximum loan amount for an SBA 504 loan is $5 million. However, there are higher limits for certain types of projects, such as energy efficiency improvements or manufacturing facilities. 

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Bottom Line 

If you’re a small business owner considering financing for a major purchase, an SBA 504 loan may be right for you. These loans have low down payments and long repayment terms, making them easier to qualify for than other types of financing. However, before you apply for an SBA 504 loan, make sure you understand how they work and who they’re best for. With this information in hand, you can make the best decision for your business’s needs.

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