FAQ
What can 504 financing be used for?
How is a 504 project structured?
How is the borrower’s injection determined?
What is a CDC?
A Certified Development Company (CDC) is a private corporation certified by the U.S. Small Business Administration (SBA) to provide SBA 504 loans. The role of the CDC is to assist the small business in obtaining 504 financing in partnership with a private lender. The SBA requires that the application for every SBA 504 loan originate from a CDC.
What can 504 financing be used for?
- Purchase of an existing building – 51% occupancy required
- Remodeling or rehabilitation of an existing building
- Acquisition of vacant land and construction of a building – 60% occupancy required
- Equipment acquisition – Life expectancy of at least 10 years required
- Soft costs involved in above projects
What is the 504 loan program?
The U. S. Small Business Administration (SBA) created the 504 loan program in 1980 to provide financing to small businesses for owner-occupied commercial real estate at below market interest rates and with low down payments.
How is a 504 project structured?
Using a $1 million sample project, the structure would typically look like this:
The SBA 504 program includes a first-mortgage loan (typically 50% of the total project) from a bank or non-bank lender. The CDC makes a 40% second mortgage loan and the borrower makes a 10% injection in most cases.
How is the borrower’s injection determined?
- 10% – Majority of projects
- 15% – If the business is a start or a new business (in operation less than 2 years), or special-purpose property
- 20% – If the project is both a start-up and special-use property
- Equipment-only loans may qualify with 10% or 15% injections
What is the maximum amount available for financing?
- There is no maximum total project cost
- SBA 504 loan maximum:
- $1,500,000 – Projects that meet SBA community development and job creation goals
- $2,000,000 – Projects that meet SBA public policy goals
- $4,000,000 – Manufacturers (defined by SIC code)
Contact us to determine what the maximum SBA loan amount is for your project.