SBA 504 Loan Program

The SBA 504 loan program is one of the SBA’s more popular small business loans for small businesses that are looking to purchase major fixed assets such as land, commercial property, or major equipment.  These SBA loans are long term fixed rate loans offered by Certified Development Companies (CDC’s).  A CDC is a private non-profit organization that is dedicated to the economic development of it’s community.  CDC’s work with the SBA and private small business loan lenders to provide financing for small business. 

SBA 504 loans are not for working capital but for fixed asset projects such as property, commercial real-estate, and major equipment

In order for a small business to be approved for an SBA 504 loan you must be able to prove to the CDC’s, SBA and SBA qualified lender that you are a low risk small business borrower.  To be a low risk small business borrower you must have a good business credit score with the three main business credit reporting agencies, a professionally written SBA certified business plan, and a business loan application with proper financials.  With all three of these, being approved for an SBA loan is going to be extremely tough.

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How SBA 504 Loan Funds May be Used
The money you will receive from be approved for a SBA 504 loan can be used in three main ways:

 - Purchasing land, improvements to land, commercial buildings, streets, parking garages, and utilities.
 - Construction of new facilities or the modernization of existing facilities.
 - Purchasing long-term machinery or equipment.

SBA 504 loan funds cannot be used for working capital, refinancing purposes, or paying off debt.

Eligibility
In order to eligible to be approved for an SBA 504 loan your business must be a for profit business and fall within the size limits created by the SBA.  Based on the SBA guidelines, a small business is qualified as small if it has a tangible net worth of less then $7.5 million and does not have a average net income in excess of $2.5 million after taxes for the processing two years.  These loans cannot be made to businesses that are looking to have investment or rental properties.

Interest Rates and Fees
SBA 504 loan interest rates are based on what each CDC lender underwriting guidelines are.  They are usually pegged above the standard market business loan rates for 5 and 10 years US Treasury issues.  Fee’s are a total of 3% of the debenture and if approved may be financed within the loan.

Small Business Start-Up Financing - How to Get Up to $150,000 to Start Your First Business

Believe it or not, one of the best places to get financing to open your first business is a bank. While banks are incredibly strict when lending money to first time business owners, there is a special loan program that helps them to loosen up their lending requirements. That program is called the SBA (Small Business Administration) 7(a) Loan program.

The 7(a) loan program can be used in many different ways by many types of businesses. The focus of this article will be using the 7(a) loan program to secure up to $150,000 in financing to start your first business.

The SBA 7(a) program works like this:

• The SBA agrees to guarantee a large portion of a loan made by a bank to a first time business owner, granted the bank follows specific guidelines when approving the loan.
• The guarantee means that if the loan goes bad, the SBA will write a check to the bank for the guaranteed portion of the loan.
• The effect of the SBA guarantee is that it greatly reduces a bank's risk and the bank will be much less strict with its lending guidelines.

So the SBA gives anybody looking to open their first business a shot at getting a bank loan to help with start-up costs. That's the easy part to understand. While a bank will loosen up its lending requirements with an SBA guarantee, it can still be hard to get approved. There are several things you need to know if you if you decided to pursue this type of financing.

1. First, you've got to have a solid Business Plan. This is what the bank will rely on heavily to determine if you know what you're doing. A solid Business Plan and Income/Expense projections will go a long way towards getting your loan request approved.
2. Second, you've got to have some business experience either directly or related to the business you are trying to open. If you don't, you'll have a hard time getting an approval.
3. Third is cash. You'll need to provide 30% of the total cost of starting your business in cash. So if you determine that you need $100,000 to start your business, you'll have to come up with $30,000 of your own cash to invest in the business.
4. Fourth, strong personal credit is a must. The better your credit scores, the better your chances of getting approved. If your credit scores are less than 650 or you have a bankruptcy you' ll have to seek other avenues to get the financing you need.

That's it in a nutshell. If you have all of these things covered you stand a decent chance of getting approved for a 7(a) loan to open your first business.