How To Apply For Sba 504 Loan

Can You Use An Sba Loan For Anything

In short, no. There are several different SBA loan programs, and each program carries its own guidelines describing how funds can and cant be used. You may hear these referred to as acceptable or allowable use of proceeds or use of funds. Loan program guidelines also include prohibited use of proceeds, or things you cant spend funds on. Well cover both of these in more detail.

That said, the guidelines may not spell out every single way you can and cannot use your SBA loan funds. For example, working capital may be an acceptable way to spend loan funds, but the guidelines may not define every example of working capital.

In addition, there may be certain uses of funds that may be acceptable in one scenario but not another. Using an SBA loan to refinance debt is a great example of this in some cases it is allowed, but in others it is not.

First Steps In Completing A 504 Loan Application

You can expect a down payment of 10-15% of the total project cost, depending on the type of business you have. The remainder of the amount will be your 504 loan. The loan will be at a fixed, below-market rate, fully amortized , with a 10- or 20-year term. A 25-year term will be available beginning in 2018 as well.

Boost Your Credit Score:

While an SBA 504 loan doesnt have a minimum credit score requirement, it can be a factor in determining if you get approved. Credit history is definitely important. If you are worried about your score or have experienced bankruptcy in the past, make the effort to focus on ways to boost your score such as paying off debt, paying your bills on time, limiting applications for new lines of credit and disputing any inaccuracies on your report.

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Sba 504 Loan Companies

There are a limited number of SBA-approved CDC lenders who can make these loans. In addition, there are non-CDC lenders who partner with CDCs to make these loans.These three lenders have a good reputation for making the SBA loan application process simple, however, and are accustomed to the cumbersome paperwork and documentation requirements that 504 financing requires. Since they do SBA loans often, they can guide you through the process and help you avoid common pitfalls when putting your application package together.

How Can The Loan Be Used

Funds are used to finance owned, long-term fixed assets. Additionally, soft costs associated with obtaining the loan can be financed as part of the total project cost. Eligible uses include:

• purchase of existing buildings
• purchase of land and land improvements, including grading, street improvements, utilities, parking lots and landscaping
• construction of new facilities or modernizing, renovating or converting existing facilities
• purchase of long-term machinery
• refinancing of debt in connection with an expansion of the business through new or renovated facilities or equipment

Note: Owner must occupy at least 51% of existing buildings. For new construction, owner must agree to occupy 60% of the building with plans to occupy 80% within 10 years.

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Can A Dba Apply For An Sba Loan

The answer is YES and NO. It will depends on certain factors. One thing you should know is that filing a DBA doesnt create a separate business entity. If you are a sole proprietor, your DBA doesnt protect your personal assets from being seized in the case of a lawsuit. Forming a business entity means your personal assets arent at risk, and filing a DBA wont alter that protection.

This goes to show that a DBA can very easily apply for an SBA loan very much like any small business. This is because a DBA is in most cases a small business and every small business is eligible to apply for an SBA loan, depending on the kind of loan in question.

SBA loans typically range from 525 years. Even though SBA-backed loans exist in order to give small business owners more access to financing, these loans are still very competitive. For your business to be given an SBA loan, the business must be able to adequately service the loan and all other debt obligations from the cash flow of the business. Some of the criteria SBA loan lenders require of businesses intending to apply for this loan include

• At least two years in business
• A credit score of 620 or higher
• More than $100,000 in annual revenue

Table of Content

Sba 504 Loan Pros And Cons

Their most notable perk is that, if you qualify, you can access higher loan limits at a lower cost when compared to many conventional loans.

A major drawback of the program, however, is that a large loan requires more documentation and a better credit rating than smaller loans. Theres also a long time between your initial application and final loan closing. Its not quick money, and its not available for most non-profit corporations.

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Current Sba Loan Programs

The Small Business Administration generally doesnt make loans directly with the exception of loans within the Disaster Loan program. Instead, it guarantees loans made by lenders. SBA loans are designed to help small businesses that would have otherwise have trouble securing affordable access to capital. Here are several SBA loan programs to consider:

See How Much SBA Loan Money You Qualify For

Use our CARES Act SBA loan calculator to see how much money your business may qualify to get.

Where To Get An Sba 504 Loan

In order to get an SBA 504 loan, you’ll need to work with a CDC. But, you’ll also need to work with a bank to help you prepare to apply, to help with the SBA portion of your loan, and to help you select a CDC to work with. If you’re going to work with a bank, be sure that you work with an active SBA lender.

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Reach Out To Your Banker Or Cdc

The first step is to talk to your normal business banker about a 504 loan. If your bank doesnt specialize in SBA loans, it may make sense to check out a big bank to see if they know more.

Also, be wary of bankers who immediately try to talk you out of doing a 504 loan. For many bankers, 504 loans can produce as little as 20% of the commission of 7 loans. If your banker doesnt know much about the program or poo-poos it, consider contacting a local CDC.

Overview: What Is An Sba 504 Loan

The SBA 504 loan program was set up to encourage banks to lend to borrowers they otherwise wouldnt. It does this by reducing the loan-to-value of the banks loan. In a typical situation, the bank lends 50% of the collateral value and a Certified Development Company makes a loan for up to 40%. The borrower then covers the remainder of project costs.

This means the typical 504 loan has a 90% LTV. Including other costs and variance between appraised value and purchase price, the borrower will likely need to inject a little more than 10% of project costs.

The CDC can place its loan in the second collateral position because its loan is guaranteed by the SBA.

Most banks are used to 75%-80% LTV on real estate loans so a 50% LTV is often enough to push the credit to approval even if there are underwriting issues.

There are a variety of uses for 504 loans, but since they’re typically structured based on collateral value, they’re almost always used to purchase or improve real estate.

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What Is An Sba Cdc 504 Loan

The SBA defines a project that may be funded by a 504 loan as the purchase or lease, and/or improvement or renovation of long-term fixed assets by a small business, with 504 financing, for use in its business operations. This may include real estate acquisition and expansion projects, as well describe shortly.

A 504 project has three main partners. Generally:

• A Certified Development Company provides up to 40% of the financing through a 504 debenture
• A third party lender provides 50% or more of the financing
• The borrower contributes at least 10% of the financing.

The SBA describes the typical structure as follows:

In no case can more than 50% of the total project cost come from the Federal sources. The maximum SBA debenture amount is typically $5 million though there are a few exceptions that permit debentures of up to $5.5 million.

Note

A new business is one that has been in operation for 2 years or less at the time the loan is approved. A business that has been in operation for more than 2 years at the time the loan is approved may be considered a new business if it is a change of ownership that will result in new, unproven ownership/management and increased debt unrelated to business operations.

Limited or special purpose properties may include bowling alleys, funeral homes, gas stations, car washes, nursing homes, golf courses, wineries and more.

Do you need more financing?

How To Apply For Sba Covid

The application process for different COVID-19 relief programs varies depending on the type of program you apply for.

• The SBA Paycheck Protection Program technically a 7 loan is closed to new applicants. But you can apply for PPP loan forgiveness through your lender.
• Economic Injury Disaster Loans are still available for businesses that have not yet received COVID-19 disaster loans. You can apply for SBA disaster loans on the SBA website.

The SBA partners with local nonprofits across the country, that offer free consultations with a business financing expert.

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Increase Small Business Lending

The bank’s exposure is reduced by partnering with SBA on the financing of a project. By mitigating their risk through these program, banks can provide more loans and offer opportunities to more businesses. Additionally, banks can provide more loans to the same business where legal lending limits may be constricting.

Eligible Uses For Sba 504 Loans

First and foremost, in order to qualify for the SBA 504 loan program, youâll have to show that you intend to use the financing for an eligible purpose. As we explained briefly above, on the whole, SBA 504 loans are designed for the purchase of major fixed assets.

More specifically, however, this includes:

• Purchasing equipment or machinery

• Revitalizing a business district of a community with a written revitalization or redevelopment plan
• Expansion of exports
• Expansion of small business opportunities for women, veterans, and people of color

On the whole, if youâre looking to apply for a SBA 504 loan, you should be able to fall into one of the broader community development or public policy categories, such as improving the local economy or stimulating new income and investment.

Along these lines, however, itâs important that you can succinctly state how you meet the job requirements or one of these public policy goals, and back up your claim with appropriate documentation. For example, you might need to include a business plan for funding or personnel records to make your case to the SBA.

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Sba 504 Loan Program Pre

As a SBA Certified Development Company , BFC is able to do a pre-qualification for our clients. Prequalifying for an SBA 504 loan can speed up the process considerablysometimes pre-qualification can be done in 24 hours, followed by an SBA Loan application and approval in as little as seven days.

We Collect

• Three years of business tax returns
• Three years of personal tac returns
• SBA Application Forms

Within 24 hours, we can issue a Letter of Intent for client to use with their Commercial Real Estate offers.

Questions?

Want To Put Less Money Down And Get Lower Interest Ratestake Advantage Of The Sba 504 Loan With Wbd

*For loans authorized and funded in Fiscal Year 2022

504 Loans Financing to help small businesses succeed!

An SBA 504 loan is a special product that can only be offered by a Certified Development Company in partnership with a local lender. WBD is one of the most successful CDCs in the country and has partnered with hundreds of local lenders to help thousands of small businesses since 1981.

The 504 loan is designed to help small businesses grow and create jobs by financing fixed assets like real estate and equipment. This program is best suited for projects from about $250,000 – $20,000,000.

Qualified borrowers can look forward to:

• Long terms
• Low, fixed rates
• Lower down payments

One of the greatest advantages of this 504 program is that it helps get financing deals done that conventional lenders are hesitant to tackle alone. In addition to the favorable terms for the borrower, partnering with WBD also reduces risk for the lender as well.

If all of this sounds good, take three minutes to view the What is a 504? video to learn more about how this powerful program works.

Yes, the SBA 504 program is a government program, but WBD is here to handle all of the interactions and paperwork with the SBA on your behalf.

Smart business is knowing all of your options, so take the time to learn about the 504 program when it is time to seek financing for your business.

Give us a call to learn more or get started.

INTERESTED, BUT WANT TO LEARN MORE?

Contact WBD:

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Collateral: Sba Form 4

List real property and other assets to be held as collateral. Few financial institutions will provide non-collateral-based loans. All loans should have at least two identifiable sources of repayment. The first source is ordinarily cash flow generated from profitable operations of the business. The second source is usually collateral pledged to secure the loan.

How Can You Qualify For This Loan

Like many bank loans, qualification can depend mostly on your credit score. The higher the score, the better your chances will be of being approved for your desired amount. In addition, if you have outstanding debt, it could deter the CDC or lender from supplying you with this type of loan.

To qualify, securing proof of down payment and proof of loan repayment is necessary. This means youll need a bank account with the 10 percent for your down payment and additional funds for loan repayment. Businesses with a history of bankruptcies, foreclosures, and tax liens will face difficulty in securing the ideal business loan.

The net worth of your business must not exceed $15 million, with an average net income of $5 million or less in the two years before the application is submitted.

Specifically, for this program, current buildings you own must be 51 percent owner-occupied. If youre planning to build a new structure, it must be 60 percent owner-occupied on opening day, and this number should climb to 80 percent owner occupancy by the tenth year. For example, this means that buying an apartment building that you wish to lease is out of the question unless you plan to lease only 20-40 percent of the apartments.

Another rule for this program is that any equipment your business buys must have at least a 10-year lifespan. This cuts out costs like computers and software and ensures only larger equipment, like farming machinery, are financed with the loan.

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Economic Injury Disaster Loans

The Economic Injury Disaster Loan program has become very popular with entrepreneurs during the pandemic. EIDL offers loans of up to $2 million to eligible businesses that meet SBA size standards, certain nonprofits, and other businesses determined to qualify.

They are primarily designed as working capital loans designed to help the small business pay expenses it otherwise would be able to cover if the disaster had not occured. The SBA describes it this way:

Economic injury loan proceeds can only be used for working capital necessary to carry the concern until resumption of normal operations and for expenditures necessary to alleviate the specific economic injury .

How To Apply For An Sba Loan

Now that you know the different types of SBA franchise loans and the requirements, how do you apply for one of these loans?

The first step is to determine if you and your franchise are eligible to receive an SBA loan. One of the best ways to determine if you are eligible is to refer to the SBA franchise directory.

Once you have determined your eligibility, the next step is to choose if you want to apply for an SBA 7 loan or an SBA 504/CDC loan. This will depend on your business needs and how you plan to use the money.

After determining what type of loan is best for your business, you will need to gather all the required documents. This will include financial statements, a business license, a resume, and more.

Once you have gathered everything that you need, you can submit your application. On average, it takes two or three months to hear about the status of your application. If you want to speed up the process, consider working with a preferred lender.

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