Why an SBA loan?

The SBA 504 loan program allows you to offer your small business clients loans at competitive interest rates and terms that generally may be limited to larger more established business clients. Your client gets up to 40% of the project financed at a long-term lower fixed rate. You are able to better manage risk and be in position to offer other products and services your client will likely need as the business grows.

Low Down Payment

504 loans require between 10% and 20% down. Up to 90% financing allows the business owner to preserve working capital for expansion.

Low Fixed Rate

504 loans utilize fixed rates that are usually 1% to 2% less than conventional financing.

Low Monthly Payments

Small businesses pay low monthly loan payments by utilizing 15 to 20 year amortization schedules from a first mortgage lender.

How is an SBA 504 project typically structured?

BEFCOR provides up to 40% of the total project cost with an affordable, fully amortized fixed-rate loan. The participating lender normally finances 50% of the total project cost with the borrower typically contributing as little as 10%.
Typical $2,000,000 real estate project:

% Source of Funds Project Cost Interest Rates Amortization Collateral
50 Lender $1,000,000 Fixed or Variable 20 years 1st Trust Deed
2nd Trust
40 BEFCOR $800,000 Fixed 20 years Deed
10* Borrower $200,000
Total $2,000,000

*Start-up OR Special Purpose Building requires 15% equity.
Start-up AND Special Purpose Building requires 20% equity.

Who Qualifies?

The SBA 504 Loan program is for small business fixed-asset financing. More than 99% of privately held, for-profit companies are considered small businesses for 504 and SBA guaranty loan financing purposes. SBA 504 loans can be used for the following needs:

  • Land acquisition and site improvements
  • Purchase of existing or build to suit facilities
  • Construction of new facilities
  • Conversion, expansion, or renovation of existing facilities
  • Equipment and machinery with long life
  • Refinancing existing debt that’s purpose was originally incurred by the small business owners to finance owner-occupied commercial real estate and other fixed assets. (This temporary use will expired on September 27, 2012)

How to Qualify

To qualify for an SBA 504 loan your clients must:

  • Be an operating for-profit business
  • Use the financing for a project located in the U.S.
  • Have a tangible net worth of less than $15.0 million and 2-year average profits after tax of less than $5 million (includes all affiliated entities)
  • Create jobs or meet a public policy or community development goal.
  • Owners can borrow $65,000 in SBA 504 funding for each job created within two years (certain public policy or community development goals allow job creation requirements to be waived).

How big can the project be?

  • Total project cost may range from as low as $150,000 up to $12,000,000
  • There’s no limit to the total project cost; however, a CDC generally can lend up to 40% of the total project cost with a dollar cap of $5,000,000.
  • Certain manufacturing businesses can go up to $5,500,000 for the 504/CDC portion of the loan.

Sample Project

ABC Corporation has been leasing a 10,000 square-foot facility and has about a year left on the lease. The company is growing and the owner has identified an existing 20,000 square-foot-building on the market for $2,250,000 and wants to make an offer but knows he doesn’t have the 20% down payment typically required. You recognize this as an excellent opportunity to use the SBA 504 Loan program and call BEFCOR to confirm that only a 10% down payment is required.

The project works as follows: The bank will finance a $1,125,000 first mortgage for 50% of the total project cost, and BEFCOR will finance $900,000 or 40% of the cost. You advise your customer that by using the 504 loan they will only need 10% of the project cost. You have a great LTV and your customer conserves working capital to further expand the business.

Project ABC Corp
Purchase land & building $2,000,000
Building up-fit $250,000
Project financing $2,250,000
Amount % Rate Term Payment
Lender Loan $1,125,000 50% 7.0% 20 yrs $8672
SBA 504 Loan $900,000 40% 5.5% 20 yrs $6163
Down Payment $225.000 10%
Total Financing $1,125,000 100% $14,835
  • Lender provides bridge financing until the 504 debenture is sold to finance the CDC/504 portion of the project.
  • Both loans use the same appraisal and environmental Phase I.
  • Bank’s uses its own underwriting policies and sets its own rate
  • CDC/504 loan rate is set at the time the debenture funding the loan is sold.

504/CDC Refinance Program Overview

Learn more in our Lender FAQ section or Contact Us with additional questions.