It never seems to be an ideal time for starting a business because there are always certain risks that you, as an entrepreneur, can accept or not. Still, if you’ve managed to get your small company up and running and survive in the market for a while, that’s great.

Every business requires certain investments to survive. If you don’t renew and upgrade work equipment, software, and supplies, there is a good chance that the competition will overtake you. Advances in technology simply require you to keep up.

You make these investments from private funds and your company’s profits. Yet, these may not be enough for some larger purchases, for example, when you need new office space, renovate an existing one, invest in a fleet, or purchase modern equipment. So you have to look for another way of financing. The SBA 504 loan program is one of them.

If you wonder what is an SBA 504 loan, it’s money you borrow from certified companies included in U.S. Small Business Administration programs for small companies. It’s designed with borrowers in mind, allowing business owners to disburse more cash over time.

Structure

The 504 loans are structured differently than other SBA loans. They are typically designed as a 50-40-10 model. In other words, the bank provides 50% of the amount asked while the Certified Development Company (CDC) takes part with 40%.

On the following source, learn more about CDCs:

https://www.sba.gov/local-assistance/access-capital

The borrower contributes the remaining 10% as equity. This amount can go up to 20% in some cases (usually for new businesses and start-ups). It’s like a down payment. The repayment period depends on whether your company is new or already established, the industry perspective, and the amount asked.

There’s also a participation fee, an up-front cost paid to the SBA. It’s typically equal to 1/2 percent of the borrowed amount and is due at loan closing. Also, there’s a processing fee of 1.75% of the total borrowed sum. But, again, it can be rolled into the amount or amortized over the life of the loan.

Who Qualifies?

To apply for an SBA 504 loan, you must have a for-profit business in a qualifying industry. You’ll likely qualify if your company has a tangible net worth of less than $15 million and an average net income below $5 million. Also, you must have low debt and no red flags in your financial history.

Besides, you’ll need to demonstrate a need for credit. For example, a business plan for your new project, fleet, or work equipment purchase will do. You’ll also need to show that you’ll create or retain jobs to achieve public policy goals.

Eligibility requirements can differ from lender to lender. For example, small companies with a minimum of five percent ownership must hire a personal guarantor.

How to Apply

Once you have met these requirements, you can apply for SBA 504 loan. You can apply through certified development companies. These organizations work with the U.S. Small Business Administration to help business owners finance major asset purchases. You can see this web source for a list of documents you need to apply for this loan.

The SBA requires you to obtain hazard insurance for your business’s premises. You must ensure it’s equal to the remaining amount of your SBA loan. While it may seem high up-front cost, it will decrease as you pay off your loan principal. That may sound daunting, but it’s well worth it to secure a loan from risky market trends. So, you’ll have the funds for your business needs while still enjoying low interests.

Benefits

There are many benefits to this program for both sides. You can use the money to improve your business, implement a renewable energy source, upgrade your premises, and many other large projects. You wouldn’t otherwise be able to finance on your own.

The 504 Loan Program promotes rural development, minority and veteran-owned businesses, and sustainable economic development. Also, it supports energy conservation and LEED-certified projects.

Prosperity doesn’t fall from heaven. In order to enjoy it, you have to invest in your business to profit from it. SBA 504 loan is an excellent thing, but fees and requirements for it vary. So ensure to look into the specific details before you apply.