SBA 504 loans are a great way to help small-business owners buy, build and improve commercial real estate.
The U.S. Small Business Administration’s 504 program offers below-market, fixed-interest rate financing that allows businesses to keep their working capital and use it to grow. The typical loan structure includes a commercial lender providing up to 50 percent, an SBA loan for 40 percent and the business owner’s down payment as low as 10 percent.
Every dollar not put into the ground can go toward growth — new equipment, new hires, more marketing — that drives revenue.
Here are five common misconceptions about SBA loans:
■ SBA loans are for “small” businesses; my business is too big to qualify. “Small” is bigger than you think. Many have annual revenues between $20 million and $100 million. It’s net worth and net profit that matter. Most privately owned, for-profit businesses qualify for SBA 504 loans.
■ Applying for an SBA 504 loan is complicated and time-consuming. SBA 504 lenders use the same documentation as your bank. For most loans, there are just three additional forms the SBA needs to close escrow, and your SBA lender will help you with those.
■ SBA loans take too long. There is no need to panic if you need to get a loan funded quickly. Loans typically can be prequalified within 24 hours. And because the same paperwork is used, once your bank approves the loan and the appraisal and environmental reports are complete, SBA approval usually is complete within eight business days.
■ SBA 504 loans are for small projects. Unlike SBA 7(a) loans, there is no limit on the total project cost that can be funded with an SBA 504 loan. Projects in excess of $25 million have been financed.
■ I already have an SBA loan, so I can’t get another. Each SBA borrower can have any number of loans as long as the SBA balance does not exceed $5 million or $5.5 million for manufacturers. Due to recent regulatory changes, the limits are lifted for projects meeting energy reduction or alternative energy requirements. Under energy efficiency rules, there is no limit to the number of SBA loans a business owner can have.
If your business is expanding and you need to purchase or build new space, an SBA 504 loan may be an attractive option. Don’t believe the myths. Take a few minutes to see for yourself, and start working to achieve your business goals today.