SBA 504 loan program

The SBA's 504 loan program is a great opportunity for small businesses to get the loans they need, while also promoting economic development in their community. The 504 loans are contingent upon job retention and creation, and have some very specific structure in order to encourage economic growth in the communities in which the businesses reside.

504 loans are not just great for the community, they are great for small businesses as well, as they provide long-term, fixed-rate financing to small businesses, who need to acquire assets, expand, or modernize their business.

504 loans have eligibility requirements:
1. Operate for profit.
2. Fit SBA size standards.
3. Tangible worth can't exceed $7.5 million.
4. Average net income over past two years can't exceed $2.5 million after taxes.

504 loans are to be used to acquire fixed assets. This means they can be used to buy buildings, machinery, equipment, inventory, to modernize a facility, to refinance existing debts, consolidate debt, or even as working capital. The funds provided by SBA 504 loans are not as restricted as other SBA loans, as long as they are being used to pay for a fixed asset that will help retain jobs in the community, and promote the growth of the small business, they are pretty much okay.

SBA 504 loans are not actually funded by SBA. Rather, they back the loan 100% (a high amount, especially for SBA loans) as long as it is structured according to their requirements. In order to get a loan for a major fixed asset, you have to be willing to fund 10% of the cost personally (as the borrower), get private sector financing for 50% (to show that private lenders think your project is worth while) as a senior lien or first mortgage, and then the remaining 40% can be a second mortgage or junior lien and comes from and SBA certified lender, a CDC, 100% guaranteed by SBA.

The following are the maximum loan amounts and the restrictions or qualifications for each loan:
$1.5 million -
Must meet job creation criteria or community development goal.
Must create or retain one job for every $65,000 provided by SBA.
If a manufacturer, one job must be created or retained 100,000 borrowed from CDC.

$2.0 million -
Must meet a public policy goal.
Public policy goals vary, but can include:
- business district revitalization
- expansion of exports
- expansion of minority business development
- rural development
- increased productivity and competitiveness
- restructuring because of federally mandated standards or policies
- changes necessitated by federal budget cutbacks
- expansion of small business concerns owned and controlled by veterans
- expansion of small business concerns owned and controlled by women.

$4.0 million-
This maximum amount is only for small manufacturers.
Must be business classified in sector 31, 32, or 33 of the North American Industrial Classification System (NAICS).
All production facilities must be located in the United States.
Must create or retain one job per $100,000 guaranteed by the SBA
Achieve one or more public policy goals.