What Is an SBA 504 Loan?

About 4 out of 5 small business owners are denied financing from banks.

These entrepreneurs don’t have any assets they can use as collateral to access a loan. Also, they don’t have anyone who can act as a guarantor when seeking financing. You should consider applying for SBA loans if you’re one of these entrepreneurs.

So, learn how different types of SBA loans works and how to apply.

Keep reading this blog post as it explains what an SBA 504 loan is and how to get it.

SBA 504 loans are federally backed small-business loans offered by certified development companies (CDCs). These loans provide affordable financing for real estate and fixed assets. The purpose of these loans is to promote business growth and job creation.

The maximum 504 loan amount is $5 million, but some projects can qualify for up to 5.5 million.

SBA 504 Loan Eligibility Requirements

You need to determine the eligibility requirements for SBA 504 loan to determine whether you qualify. You want to know the key things to meet when applying for this loan. Also, learn the paperwork to attach to the 504 loan application form.

Here are the key things your business must meet to be eligible for the SBA 504 loan:

Be worth $15 million or less
Operate for profit (nonprofits don’t qualify for 504 loans)
Have an average revenue of less than $5 million for the previous 2 years
Have a viable business plan
Meet the SBA definition of small business
Meet the job creation requirements
Provide proof it can afford to repay the loan within the allocated period
Not engage in any lending activities
Not have defaulted on any federal loan before
Not engage in any political or lobbying activities
Not engage in any speculative activities such as gambling

The above things provide details on your company’s finances and need for financing. So, to increase the odds of qualifying for the SBA 504 loan, create a sound business plan. You want to highlight how you intend to use the loan funds.

What Can an SBA 504 Loan Be Used for?

When applying for the SBA 504 loan, you’ll need to explain how you intend to use the money. So, it’s wise to learn what SBA 504 loan funds can be used for.

Here are some of the reasons for applying for an SBA 504 loan.

To buy or construct new business facilities
To purchase long-term equipment and machinery
To improve/renovate existing business facilities

So, you cannot use SBA 504 loan to invest in a rental property or repay another loan. Also, you cannot use this loan to pay for current expenses such as rent, salaries, and wages.

Consult a bank servicing firm if you’re doubtful about how to use SBA 504 loan. The idea is to get professional insights on how different business loans work. With this information, it’s easy to decide whether to still apply for an SBA 504 loan or another type of loan.

How to Apply for SBA 504 Loan

When applying for an SBA 504 loan, you’ll work directly with a private lender and a CDC instead of an SBA-backed lender. So, even if you have applied for other SBA loans, applying for SBA 504 loan might be challenging.

To help you, here’s the SBA 504 loan application process.

Search for a Qualified Loan Processing Company (QLPC)

A QLPC is an organization that can help you process SBA 504 loans. So, to apply for an SBA 504 loan, you’ll need to find a QLCP near you. The QLCP will process your loan application and facilitate the financing.

Pre-Qualification

Once you find a QLPC, the next step is pre-qualification to determine whether your business meets the 504 loan program requirements. The pre-qualification is free and doesn’t require any hard credit inquiry. Also, it’s not as rigorous as the formal 504 loan application process.

Pre-qualification aims to help you avoid wasting time and money applying for SBA 504 loan when you don’t qualify. To undertake the pre-qualification, the QLPC will need you to provide interim business financial reports.

Purchase Decision

Next, decide the specific real estate property or equipment to purchase with the SBA 504 loan. The goal is to estimate how much the property or equipment cost. With this figure, it’s easy to decide the 504 loan amount to apply for.

Also, you’ll discover how much money you need to cover the down payment.

Submit a Loan Application

Once you know how much money you need, the next step is to get a 504 loan application. This form will fill in your business details, how much money you need, and how you intend to use the funds. Also, you’ll need to attach documents that prove your business can afford to repay the loan.

So, pick a reliable QLPC to help you properly fill out the 504 loan application form.

Loan Approval

Once you submit the 504 loan application documents, the CDC will undertake due diligence to decide whether to approve. In some cases, the CDC will request businesses to provide additional documents. If this happens to you, provide these documents ASAP to expedite the loan approval process.

Once the CDC verifies the application documents, the next thing is to approve the loan and disburse funds.

Apply for SBA 504 Loan to Boost Business Growth

SBA 504 loan aims to provide businesses with real estate, fixed assets, and equipment financing. So, consider applying for this loan if you want to expand your business facilities. The goal is to boost business growth and create more jobs.

Are you still debating whether to apply for the SBA 504 loan? Let our professional business financial experts help you decide.

What Is an SBA 504 Loan?