Small businesses contemplating the purchase, building or modernization of a new facility, or the purchase of new long term equipment should consider the SBA 504 Loan program as a source of financing. The 504 Loan program is generally open to for-profit businesses with a tangible net worth of less than $15 million, which have had net income of less than $5 million for the preceding two years. The program provides for loans up to $5 million for projects, depending upon certain SBA supported goals (i.e. job creation, small manufacturing, energy reduction, etc.) and the degree to which the loan will support the SBA goal (i.e. the number of jobs to be created, etc.).
The attractive aspects of the program include (i) longer terms (20 years for building/land and 10 years for equipment), (ii) low equity contribution down payment requirements (10% as opposed to 20+%) and (iii) competitive interest rates indexed off of 5 and 10 year treasury notes.
Typically, a 504 project includes three elements: (a) a loan (or first mortgage) secured with a local bank covering up to 50% of the project cost, (b) a second mortgage secured with a junior lien from an SBA Certified Development Company (backed 100% by the SBA) covering up to 40% of the cost, and (c) a contribution of at least 10% equity from the small business borrower. Fees run about 3% of the loan amount and can be added to the financing.
If you are contemplating an expansion of your business you should consider all available financing programs including SBA Loan Programs. Contact us for help in your loan process.