SBA 504 Program: A Few Things to Keep In Mind

by Elaine Fairman, Executive Director

Small business owners are busy! They often work extensive hours, perform many responsibilities in their businesses and are expert multi-taskers.

For several reasons, the task of borrowing money can be overwhelming and frustrating, especially if the business is financing land and buildings or machinery and equipment. Some businesses need to move from leased space to a more “permanent home,” and they want to either purchase an existing facility or build their own. Others need updated equipment to be more competitive, reduce production times or increase output.

While there is no eHarmony for emerging and expanding small businesses seeking the perfect financing match, there are valuable places to gain information – and many of those sources are free! It would be simple to ask a banker you have trusted for 20 years for assistance in finding the best “financing solution” for your business – however, that is rarely an option. In today’s fast-paced world, with many different types of bankers, the small business owner needs to consult several sources before making a financing decision. When faced with the task of obtaining a 20-year loan, the investment of time to research options can often result in long-term benefits and savings. Considering the SBA 504 program can be a great step!

A few things to keep in mind:

• While always ready to help and provide information, bankers are not always familiar with the benefits of SBA programs. If you are financing real estate, the SBA 504 program can be the perfect solution. Different from other loans, SBA 504 loans were designed specifically to finance land, buildings, machinery and equipment. SBA 504 loans offer long-term low interest rates and low down payments. A bank (or other lending institution) provides a portion of the financing, and an organization such as BEFCOR provides a portion using the SBA 504 program. Usually, a bank finances 50%, and the SBA 504 program finances 40%. The business’s down payment is normally only 10%. The benefits are often substantial – savings that many businesses can use!
• Know which features (interest rate, term, access to other banking services, fees, etc.) are most important to you. If you want a fixed interest rate for 20 years, and the traditional bank loans offer only 5 year fixed rates or variable rates, do you have other loan alternatives? Surprisingly, the SBA 504 program offers 10- and 20-year loans at low, fixed interest rates. In fact, SBA 504 loans can have lower loan payments and lower fees than some similar programs.
  If you have multiple loan offers, compare them “on paper.” Many businesses will make a decision based on one factor without a comprehensive comparison. What are the fees? What is the interest rate risk? Will you need to refinance in a few years (and if you do, will you have to pay fees for an appraisal, environmental due diligence, and bank origination fees)?
• SBA 504 loans have been streamlined, and the process can be simplified by organizations such as BEFCOR. Loan decisions are quick, and paperwork will probably be similar to what your bank requires. BEFCOR’s staff of 10 has over 100 years of combined experience – and we are ready to assist your business! Other SBA programs are available as well.
• Refinancing is now available in the SBA 504 program. Call BEFCOR for details.

SBA 504 loans assist emerging and expanding businesses. One of the many benefits is long-term, low, fixed interest rates. In the current interest rate environment, “locking in” or receiving a fixed interest rate can mean your business reaps rewards of lower payments for the next 20 years! The option of 90% financing (bank financing plus the SBA 504 loan) can save working capital for future growth. Call BEFCOR to speak with an expert about SBA 504 loans – and get the facts. You will quickly see the benefits.