The standard SBA 504 loan program is a long-term financing tool, designed to provide small businesses with long-term, fixed-rate financing to acquire major fixed assets for expansion or modernization. Borrowers can put as little as 10% into this loan in the form of capital or existing equity real estate or equipment.
Eligible Uses & Property Types
- The purchase of land, including existing buildings
- The purchase of improvements, including grading, street improvements, utilities, parking lots and landscaping
- The construction of new facilities or modernizing, renovating or converting existing facilities
- The purchase of long-term machinery and equipment
- The purchase of a doctors practice
- Buying a dental practice
- Purchasing a veteranarian practice
- Buying a gas station convenience store
- The purchase of self storage buildings
NOTE: See SBA 504 Refinance for expanded loans guidelines.
To be eligible for a 504 loan, your business must be operated for profit and fall within the size standards set by the SBA. Under the 504 Program, a business qualifies as small if it does not have a tangible net worth in excess of $7.5 million and does not have an average net income in excess of $2.5 million after taxes for the preceding two years. Loans cannot be made to businesses engaged in speculation or investment in rental real estate.
Maximum Amount of Loan
The maximum SBA 504 loan is tiered based on several factors. The levels are $1.5 million, $2 million and $4 million.
The maximum loan amount is $1.5 million when meeting the job creation criteria or a community development goal. Generally, your business must create or retain one job for every $65,000 provided by the SBA, except for small manufacturers which have a $100,000 job creation or retention goal (see below).
The maximum SBA loan is $2.0 million when meeting a public policy goal. These include:
- Business district revitalization
- Expansion of exports
- Expansion of minority business development
- Rural development
- Increasing 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 (especially service-disabled veterans)
- Expansion of small business concerns owned and controlled by women
The maximum loan amount for small manufacturers is $4.0 million. A small manufacturer is defined as a company that has its primary business classified in sector 31, 32, or 33 of the North American Industrial Classification System (NAICS) and all of its production facilities located in the United States. To qualify for a $4.0 million 504 loan, your business must meet the definition of a small manufacturer and accomplish one of the following:
- Create or retain at least one job per $100,000 guaranteed by the SBA [Section 501(d)(1) of the Small Business Investment Act (SBI Act)]
- Improve the economy of the locality or achieve one or more public policy goals [sections 501(d)(2) or (3) of the SBI Act]
Generally, the project assets being financed are used as collateral. Personal guaranties of the principal owners are also required.
504 Development Company Program Fee Eliminations
For eligible loans approved through the Agency’s section 504 Development Company Program on or after February 17, 2009, The SBA will temporarily eliminate two program fees:
- Third-Party Participation Fees (Small Business Investment Act Section 503(d)(2) fees codified at 13 CFR 120.972); and
- CDC Processing Fees (13 CFR Section 120.971(a)(1) fees).
Consistent with the Recovery Act’s temporary elimination of CDC Processing Fees, CDCs will no longer be allowed to collect deposits from small business applicants that would have gone towards payment of the CDC Processing Fee upon loan approval under 13 CFR 120.935. SBA will reimburse the CDCs for the waived CDC Processing Fees.
The SBA will pay CDCs two-thirds of the estimated CDC Processing Fee at the time of loan approval by the SBA or upon the issuance of a loan number for a loan approved under the Premier Certified Lenders Program. The remainder of the fee will be paid immediately following debenture funding and will be equal to 1.5% of net debenture proceeds for which a CDC does not collect the CDC Processing Fee, minus the amount previously paid. If a borrower has already paid a CDC for the fee, the CDC must reimburse the borrower from the SBA refund. The SBA will not permit CDCs to cancel loans approved by the SBA prior to February 17th, 2009 and resubmit them in order to qualify for the reimbursement of the processing fee. If the Participation Fee has already been paid to the SBA on an eligible loan, the SBA will refund the fee.