SBA 504 Loan for Real Estate Properties

What is an SBA 504 Loan?

The Small Business Administration (SBA) offers various financing options to support small businesses in the United States, and one such option is the SBA 504 loan program. This loan is specifically designed to assist small business owners in acquiring real estate, machinery, and equipment for their enterprise’s expansion or modernization.

Collaborating with Certified Development Companies (CDCs) and other lenders, the SBA ensures these loans are more accessible. Typically, a real estate project involves a partnership between a borrower, the CDC, and a bank or other third-party loan provider.

SBA 504 Loan Purpose

SBA 504 loans provide long-term, fixed-rate financing for businesses looking to purchase owner occupied commercial real estate. These loans are primarily targeted at real estate investments, such as retail properties, restaurants, industrial buildings, and land development projects. Other purposes include purchasing machinery and equipment or making improvements to commercial real estate.

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Loan Rates (as of November 2023) 
View Historic Rates >

25 Years:
as low as

7.01%

20 Years:
as low as

7.02%

10 Years:
as low as

7.21%

Advantages and Eligibility of an SBA 504 Loan

Compared to conventional loans, SBA 504 loans offer several advantages due to their favorable interest rates, longer repayment terms, and low down payment requirements.

Low Down Payments

One significant advantage of SBA 504 loans is the lower down payment. Traditional real estate loans may require a down payment of up to 20-30% of the total project cost. However, with the SBA 504 loan program, businesses can expect a down payment as low as 10%, which helps maintain liquidity and reserve working capital for other business needs.

Fixed Interest Rates

Obtaining a loan with a fixed interest rate helps borrowers plan their repayments without any uncertainty. SBA 504 loans come with fixed rate financing, offering long-term predictability and allowing business owners to manage their finances more effectively.

Long Repayment Terms

When it comes to business loans, extended repayment terms are an attractive feature as they lower the monthly loan payment amount. SBA 504 loans typically come with long repayment terms of up to 25 years. This allows borrowers to focus on growing their business rather than struggling with high monthly payments and financial stress.

Eligibility Criteria and Use of Loan Proceeds

Before applying for an SBA 504 loan, it is crucial to familiarize yourself with the eligibility requirements. Borrowers should meet the following criteria:

  • Be a for-profit business operating in the United States or its territories
  • Have a tangible net worth of less than $15 million and an average net income of less than $5 million after federal income taxes in the previous two fiscal years
  • Meet job creation or community development goals

Additionally, the SBA sets specific guidelines on how the loan proceeds can be used. These include:

  • Financing the purchase, construction, or renovation of commercial real estate and buildings that will be majority owner-occupied
  • Investing in equipment and machinery with a useful life of at least 10 years
  • Refinancing debt associated with real estate under specific conditions

The Application Process and Required Documentation

A critical aspect of applying for the SBA real estate loan is understanding the requirements and documentation preparation. The SBA loan program involves a step-by-step process, as well as the submission of various documents as part of the application. Upon determining eligibility, the next step in the application process is to gather all the necessary documentation for the real estate project. Required documents vary depending on the loan type and the specifics of the real estate investments. Some common required documents include:
  • A completed SBA Loan Application Form
  • Personal financial statements of the owner(s)
  • Personal tax returns of the owner(s)
  • Business tax returns and financial statements (Profit and loss statements, balance sheets, etc.)
  • Projections of business cash flows and performance
  • A detailed description of the business and its products/services
  • Documentation of real estate collateral
  • An overview of the proposed real estate project, including costs and construction plans
  • Verification of equity injection
  • Any additional documents that may be specific to the loan program, credit union, or industry

It’s essential to be thorough and accurate with the documentation to ensure a seamless application process and to improve approval chances.

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Working with a Certified Development Company

A CDC is a key player in the SBA 504 loan process, as they help businesses navigate the complex loan requirements. Partnering with a CDC is mandatory for SBA 504 loans. CDCs are non-profit organizations certified and regulated by the SBA to promote economic development and facilitate the provision of SBA real estate loans to small businesses. Their main role is to underwrite , process, close, and service SBA 504 loans. Working closely with a CDC like Alloy Development Co. can significantly impact your loan application’s success. These experts help with the loan program application process while providing valuable guidance and resources throughout. As part of their responsibilities, a CDC will:
  • Assist you in understanding SBA loan requirements and eligibility
  • Help you gather necessary documentation
  • Review your financing request and business plan
  • Provide insights for improving your loan application
  • Direct you to other resources, including counseling and educational materials, to optimize your understanding of SBA loans and their benefits
  • Help you navigate the various SBA real estate loans available to your business

Remember, working with a CDC is essential to the success of your SBA 504 loan application, and they can offer valuable guidance throughout. Be sure to communicate openly and honestly with your CDC contact at every stage of the process.

Start Your SBA 504 Loan Process with Alloy Development Co.

Alloy Development Co. is an experienced and dedicated provider of SBA real estate loan services. We are committed to guiding borrowers through the application process by providing tailored solutions and valuable insights for their real estate projects. From application preparation and submission to loan fund disbursement, Alloy Development Co. supports your business every step of the way. By partnering with us, you can benefit from a seamless and efficient SBA 504 loan application process. As part of our services, we offer:
  • A comprehensive review of SBA loan eligibility and requirements
  • Expertise in various loan types and SBA real estate loans
  • Assistance with the gathering and preparation of required documentation
  • Explanation of terms and conditions of the SBA
  • Guidance on how to strengthen your loan application
  • A commitment to a professional and expedited process

Navigating the world of SBA real estate loans can be challenging. Allow Alloy Development Co. to simplify the process and guide you toward a successful SBA 504 loan application.

Ready to learn more? Call one of our loan experts today at 513-631-8292 today.

FAQs

Businesses must meet certain criteria to qualify for an SBA commercial real estate loan. These conditions include:

  • The business must operate within the United States
  • The business must be classified as a for-profit entity
  • Owners must have adequate personal credit, business experience, and financial resources to contribute towards the real estate project
  • The business must meet SBA size standards, which usually includes a net worth under $15 million and an average net income under $5 million
  • The real estate property must be at least 51% owner-occupied
  • The owner(s) need to demonstrate reasonable equity investments in their business

Learn more about SBA 504 loan requirements here.

SBA 504 loans can be used for a variety of real estate investments, including:

  • Purchasing land or existing buildings
  • Constructing new commercial property
  • Renovating or expanding existing commercial property
  • Acquiring long-term machinery or equipment
  • Refinancing existing commercial real estate loan debt

Repayment terms for an SBA 504 loan range from 10 to 25 years, depending on the type of project and business. Generally, commercial real estate projects have a 25-year term, while heavy equipment and machinery have a 10 to 20-year repayment term. Interest rates are fixed throughout the repayment period, providing predictable monthly payments.

Yes, the SBA 504 loan program can be used to refinance existing commercial real estate loans, as long as the debt was initially used to fund eligible business expenses, and the property meets occupancy requirements. Refinancing with an SBA 504 loan can help small business owners take advantage of lower interest rates and longer repayment terms, benefiting their overall financial health.

Talk to one of our loan experts today to find the right solution for your needs

Or give one of our expert loan officers a call at 513-631-8292 for more info.

“Alloy walked me through the SBA 504 loan process every step of the way, which I really needed since I had never purchased commercial real estate before. They also helped me out with a tricky leased land situation that helped pave the way for future commercial real estate purchases.”
Steve Dorgan
President, Wray Precision, SBA 504 Loan Borrower