The Small Business Administration (SBA) 504 loan program was created to help small to mid-sized business owners acquire commercial property without the financial hassles. While this program is less-used and very little understood, in order to qualify, over half (51%) of the property must be occupied by the borrowers within one year of ownership. To qualify for this program, U.S. citizens or permanent residents must hold a majority of the ownership of the operating companies and the holding company.

A 504 project includes a loan secured with a senior lien from a private-sector lender covering up to 50 percent of the project cost, a loan secured with a junior lien from the CDC (backed by a 100 percent SBA-guaranteed debenture) covering up to 40 percent of the cost, and a contribution of at least 10 percent equity from the small business owner.

Proceeds from 504 loans must be used for fixed asset projects such as: purchasing land and improvements, including existing buildings, grading, street improvements, utilities, parking lots and landscaping; construction of new facilities, or modernizing, renovating or converting existing facilities; or purchasing long-term machinery and equipment. The 504 Program cannot be used for working capital or inventory, consolidating or repaying debt, or refinancing

Interest rates on 504 loans are pegged to an increment above the current market rate for five-year and 10-year U.S. Treasury issues. Maturities of 10 and 20 years are available. Fees total approximately three (3) percent of the debenture and may be financed with the loan.

The project assets being financed are used as collateral. Personal guaranties of the principal owners are also required.

To be eligible, the business must be operated for profit and fall within the size standards set by the SBA. Under the 504 Program, the business qualifies as small if it does not have a tangible net worth in excess of $7.5 million and does not have an average net income in excess of $2.5 million after taxes for the preceding two years. Loans cannot be made to businesses engaged in speculation or investment in rental real estate.

As specified by our lender, the following is a list of when a borrower is eligible and ineligible SBA 504 product

SBA 504 Loans: How to Qualify for 504 Loan Program

Eligible Borrowers:

• For-profit, non-publicly traded businesses.
• Tangible business net worth (including affiliates) not to exceed $7.0 million.
• Average net income of the business not to exceed $2.5 million over the previous two years.
• Personal liquidity of each principal/guarantor not to exceed the total project costs of the proposed 504 loan.
• Ownership must be comprised of 51% U.S. citizens or resident aliens (Legal Permanent Residents).

Ineligible Borrowers:

• Non-profits (except sheltered workshops).
• Passive holders of real estate and/or personal property.
• Lending institutions (mortgage brokers and correspondent lenders are eligible).
• Life insurance companies (however, franchised agents are eligible).
• Businesses located in a foreign country or owned by aliens.
• Businesses selling products/services through a pyramid plan.
• Illegal businesses.
• Gambling concerns.
• Businesses which restrict patronage.
• Government owned entities (excluding Native American Tribes).
• Businesses engaged in promoting religion.
• Consumer and marketing cooperatives (producer cooperatives are eligible).
• Businesses engaged in loan packaging.
• Businesses owned by persons of poor character.
• Businesses providing prurient sexual material.
• Businesses that have previously defaulted on a Federal loan.
• Businesses engaged in political or lobbying activities.
• Speculative businesses.

If your business didn’t make this list, then it’s probably acceptable.

Ineligible Use of Funds: (talk with us about using a SBA 7a product)

• Refinancing (unless debt has been in place for less than 9 months)
• Working capital.
• Inventory.
• Rolling stock.
• Business "good will" (common in business acquisition financing).

1. Aspire Funding Group will work with the borrower to help them understand the process with a personal touch while keeping close communication on the progress of the loan. We are entrepreneurs, so we know how frustrating this process can be, we’ve been in “your shoes”.
2. Our lender can extend Ninety Percent (90%) Financing of the total project costs for commercial real estate purchases.
3. Business owners can save on interest expenses by not accepting market interest rates when below market, fixed interest rates are available with this 504 loan program.
4. Longer loan amortizations allow for smaller monthly payments, which have less impact on business cash flow. Furthermore, since prepayments are always allowed (generally up to 20% of the principal balance during the first ten years), business owners can have the best of both worlds — smaller monthly payments for when times are tight, but able to prepay when excess cash is on hand.
5. When the business owner puts in 10% equity, they are able to get below market interest rates and longer loan amortization versus traditional lending. This means that the business owner has more cash flow to work with.
6. There are benefits to owning commercial real estate instead of leasing. Owning typically has an immediate reduction of up to forty percent (40%) on real estate expenses.
7. Financing closing and other soft costs with our 504 loan helps keep out-of-pocket expenses to a true ten percent (10%) minimum in order to preserve more capital for other uses.
8. No balloon payments, or calls enable borrowers to have more control, more peace of mind.
9. Closing in as little as 45 days allows business owners to take possession of their new asset and start reaping the advantages.
10. Our lender does not require other banking products or services in conjunction with the 504 loans. Our lender is a non-depository financial

As specified by our lender, the following is an explanation of each portion of an SBA 504 loan.  Below that are examples of SBA 504 Loan Project Costs and Loan Structures provided by our lender:

Project Cost and Structure Example:

SBA 504 Loan Structure Example:

The following is a detailed comparison of the two largest SBA financing programs.

Click To Apply for 504 SBA Loan