The 504 Loan Program is a U.S. Small Business Administration (SBA) funded program that provides financing to small and mid-sized businesses for the purchase of equipment and commercial real estate. The SBA loan is administered by a Certified Development Company (CDC) such as BLP in partnership with a commercial bank or credit union lender.
The primary lender will fund all of the debt initially including the portion of the debt that will be held by SBA in the long term. Once the balance of the debt is fully funded by the primary lender, the SBA will fund their portion of the loan in approximately 90 days. Read More
When your loans close and your SBA 504 loan is funded, you’ll incur various fees totaling approximately 2-3% of the SBA loan amount, plus an attorney closing fee of $2,500. These fees are financed within the SBA loan proceeds, so they are not out-of-pocket expenses. BLP will collect a deposit for a portion of these fees only after approval is received from SBA. There are no application fees.
SBA will take a subordinate collateral position behind the primary lender. Generally, collateral will include only the assets being purchased with SBA loan funds. The 504 program does not require additional collateral as required within the 7(a) program such as personal assets of owners.
In most cases, a 10% equity contribution will be required. For startup businesses or for specialty-use properties, an extra 5-10% contribution may be required. This equity requirement can be met by using assets other than cash including private financing, municipal incentives, or equity in the subject property.
Compared to conventional commercial financing, the SBA 504 program helps borrowers reduce their down payment and fix the interest rate on a portion of the financing for up to 25 years at a rate that is typically below-market. For lenders, risk is reduced as the primary lender will typically lend 50% of the cost while SBA bears most of the collateral risk with a subordinate lien position.
Yes! For existing commercial real estate properties, the borrowing company must occupy at least 51% of the leasable area and the remainder can be leased to third parties. For new construction buildings, the borrowing company must occupy 60% of the leasable area immediately with plans to occupy 80% over time.
Generally, the 504 program will make sense for projects with a total cost of greater than $400,000. All borrowers are eligible for up to $5 million in aggregate SBA financing through the SBA 504 & 7(a) programs. Projects involving small manufacturing firms and green-energy generation are eligible for up to $5.5 million on each project.
Yes, startups are eligible. newly established companies would need to provide a written business plan with financial projections.” The financing structure also changes in that SBA requires an additional 5% cash equity injection from the borrower reducing SBA’s participation level in that project.
In order to finance and assist with the growth and development of businesses throughout the State of Wisconsin, BLP staff provides access to the SBA 504 loan program and other resources using our expertise, knowledge, and partnerships.
BLP is committed to business growth and community development by providing alternative financing options for: