504 Program

Key advantages of 504 loans over traditional business loans

• Lower down payment requirements
  Higher loan-to-value ratios allowed by 504 loans make qualifying easier. Business can borrow up to 90% of their financing needs this preserving their cash.
• Fixed interest rate
  504 loans carry fixed rates for the life of the loan. Fixed rates help maintain consistent cash flow in a fluctuating economy.
• Longer repayment terms
  SBA repayment periods are longer than most conventional loans. This makes monthly loan payments more affordable and helps to improve cash flow.
• Lower collateral requirements
  Due to the 504 loan guarantee, collateral may be less critical in loan qualification decisions.

How 504 loan proceeds can be used

• To purchase, construct, or improve land and building
• To buy and install machinery and equipment
• To cover most loan costs

Qualifying for a 504 Loan

Since 99% of all U.S. businesses meet the SBA (U.S. Small Business Administration) definition of a small business, most businesses qualify for a 504 loan. Eligible businesses must:

• Be for-profit
• Be owner-operated
• Have a net worth below $7,500,000
• Have an after-tax net profit below $2,500,000 (last two-year average)

A 504 loan has three participants

1. Bank Financing --
   Bank participates for as little as 50% of the project costs at competitive rates and terms due to minimal exposure on the project.
2. 504 Loan --
   Finances up to 40% of project costs with a maximum of $4,000,000.
3. Company Injection --
   Company contributes a minimum down payment of at least 10%, freeing additional cash for other business purposes.

Maximum size of a 504 loan

$1,500,000

Create or retain one job for every $50,000 of the 504 loan.

or

Meet one of the following community development goals:

• Help to improve, diversity or stabilize the economy of the locality
• Stimulate other business development in the community
• Bring new income into the community
• Assist manufacturing firms
• Assist businesses in a labor surplus area

$2,000,000

Meet one of the following public policy goals:

• Revitalize a business district
• Expand exports
• Increase productivity and competitiveness
• Expand minority, woman, or veteran-owned business development
• Change necessitated by federal budget cut backs
• Rural development
• Change required by mandated standards regarding safety, health, or environment

$4,000,000

Be a manufacturing firm as identified by SBA standards.