Frequently Asked Questions SBA 504 Loans
What is the 504 Loan Program?
What can 504 loans be used for?
How does financing work?
What advantages does the loan offer?
What kind of equipment is eligible for SBA 504 financing?
What kind of job creation, community development and public policy
goals must be met to obtain an SBA 504 loan?
What is the 504 Loan Program?
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.
What can 504 loans be used for?
Business owners can use 504 loans for land and building purchases, new
constructions or renovation, leasehold improvements and purchases of heavy
machinery, equipment and commercial vessels. They can also be used for soft
costs such as title searches, attorneys fees, appraisals, etc.
How does financing work?
GEODC partners with Lenders to provide up to 90 percent financing on a
project. The partner lender typically provides 50 percent and GEODC provides 40
percent. The borrower puts as little as 10 percent down, depending on the type
of project.
What advantages does the loan offer?
With low down payments and fixed, low, long-term interest rates, the SBA 504
loan helps businesses retain working capital. It removes the uncertainty with
refinancing and balloon payments, enabling long-term planning and business
expansion. For lenders, the loan offers lower risk through shared financing, a
low loan-to-value and the ability to earn CRA credits.
What kind of equipment is eligible for SBA 504 financing?
The SBA 504 Loan Program can finance4 all costs associated with the purchase,
transportation, dismantling or installation of machinery and equipment by a
small business for use in its business operations. The machinery and equipment
must have a useful life of at least 10 years. If the borrower owns equipment
that is heavy or highly calibrated that must be moved as an essential part of
the project then any special moving costs may be included in the project cost.
Non-eligible project costs include:
Short-term equipment, furniture and furnishings (unless essential to and a
minor portion of the Project)
Automobiles, trucks and airplanes
Construction equipment (except for heavy duty construction equipment integral
to a business operations and meeting the IRS definition of capital equipment.
What kind of job creation, community development and public policy
goals must be met to obtain an SBA 504 loan?
To be eligible for a 504 loan, applicant businesses must meet a least one of
many job creation, community development or public policy goals through their
expansion projects. The goal(s) met determine the maximum amount of the 504
loan.
Job creation goals:
Jobs are created within two years as a result of the project.
Jobs are retained if it can be shown that jobs would be lost to the
community if the project was not completed.
Community development goals:
Project will help to improve, diversify or stabilize the economy of the
locality
Project will stimulate business development in the community
Project will bring new income into the community
Applicant business is a manufacturing firm
Applicant business is in a labor surplus area
Public policy goals
A minority individual owns and controls 51 percent or more of the
applicant business
A woman owns and controls 51 percent or more of the applicant business
A veteran owns and controls 51 percent or more of the applicant business
Project is located in a business district of a community with a written
revitalization or development plan
Project will expand exports
Project is located in a rural area
Project is necessitated by federal budget cutbacks
Project is required by a federally mandated standard or policy
Project will increase productivity and competitiveness (retooling, robotics or
modernization)
Project will reduce energy consumption by at least 10 percent
Project will use sustainable design (LEED Standards)
Project will product renewable energy, micropower, or renewable fuels,
including biodiesel and ethanol
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