SBA Frequently Asked Questions

What is the purpose of the SBA 504 loan program?
The SBA 504 loan program is an economic development tool intended to assist small businesses acquire the facilities and equipment needed for growth. The primary goal of the SBA 504 loan program is to stimulate job creation and economic growth.

What are the benefits of the SBA 504 loan program?
The 504 program offers small and medium-size businesses up to 90% financing with low interest, long-term, fixed-rates in 10 or 20 year terms. It offers banks excellent loan to value ratios on which the government takes second lien in most cases. Banks participating in the 504 loan program may receive CRA credits.

How Does the SBA 504 Loan Program Work?
In utilizing this program, borrowers must understand they are getting two loans. Typically, projects are financed by obtaining 50 percent of the project cost through conventional financing using private lenders, 40 percent (not to exceed $5,500,000) through SBAlliance Capital 504 program, and the remaining 10 percent provided by the borrower. Borrower's contribution will be determined by project type and experience.

What do you need to get started on the loan process?
For a new business: The borrower needs to provide a business plan, project costs and the SBAlliance Application .
For an existing business wanting to expand: Project costs and the SBAlliance Capital Application.

How much down payment is required?
For existing businesses (defined as having two full years of operations) purchasing multi-purpose office/industrial warehouse properties, the down payment required is 10%. Existing businesses purchasing single purpose properties (such as motels, convenience stores, and car wash facilitates) are required to put down 15%. Start-up businesses are required to put down 15%. Start-up businesses purchasing single purpose properties are required to put down 20% of total project costs.

What types of projects does SBAlliance Capital typically finance?
Typical projects include office buildings, manufacturing facilities, warehouse facilities, medical practices, hotels, motels, gas station/convenience stores, restaurants, and car wash facilities, among others. All properties must be owner occupied. Heavy equipment purchases may also qualify depending on type and use.

Can working capital and inventory be financed through the 504 Loan Program?
Sorry, working capital and inventory are not eligible uses of proceeds. The 504 funds can only be used for fixed asset purchases, renovations or construction.

What do you mean by "long term, fixed-rate financing?"
The SBA 504 Loan Program offers borrowers 10 year terms on heavy equipment and machinery and 20 year terms on those projects involving the purchase of land and buildings. During this time, borrower’s rates for the 504 portion are fixed and have historically been lower than commercial rates.

What is the interest rate?
The bank sets the interest rate on the first mortgage. The SBA rate is fixed at the time of debenture sale for the life of the loan. It is typically below market rate and is tied to U.S. Treasury Bills. Check out our Rates and Terms for the latest interest rates.

What types of fees are involved?
Fees total approximately 3 percent of the SBA 504 and can be financed as part of the loan. These costs include:

- One Time Fees 

NOTE:  A $2,500 refundable application fee is required prior to initiating the application process. This fee is refunded in its entirety upon sale of the debenture and payment of loan closing costs. Should the application be cancelled prior to loan closing, all necessary costs incurred by the CDC will be deducted from the deposit prior to its disbursement.

Who is eligible?
Most businesses are eligible providing they meet the following criteria:

• Business must be owner occupied - This is defined as occupying at least 51% of an existing piece of real estate being purchased and 60% of a building being constructed.

• Business and affiliates must have net worth of less than $8.5 million.

• Business and affiliates net profit after taxes averaged over two years must not exceeding $3.0 million.

• SBA excludes certain types of businesses enterprises. These include rental properties such as apartment and shopping centers, businesses that are primarily speculative in nature, privat clubs, sexually oriented businesses, and businesses that promote religion as their primary purpose.

What is the approval time?
Processing time necessary to obtain a full SBA 504 loan commitment is approximately 2-3 weeks after receipt of all required documentation.

Why should I choose a SBA 504 loan?
SBA 504 loans compliment the conventional bank loan by adding value to small business projects. Advantages to using this program include a reduced down payment, financing of all costs including soft costs, lower interest and fixed rates for easier budgeting and substantial savings over the term of the loan.


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