The Advantages of SBA 504 Loans

The federal government formed the Small Business Administration on July 30, 1953, and this agency has worked tirelessly since then to help people realize their American dream. The agency offers guidance on everything from how to write a business plan to SBA loans, or more accurately SBA loan programs. The SBA doesn’t finance loans itself, but participating financers do, and one of the programs they offer their potential clients is the 504 loan. Keep reading to learn more about this financial vehicle.

Funding Uses

Those who qualify for an SBA 504 loan can use the money for a variety of needs. In general, you must be a small business and operate within an area focused on development to qualify, but more on that further down. You may use the funds to purchase equipment or real estate. You may not use the funds to boost your working capital, consolidate your debt, purchase inventory or develop real estate. In other words, your real estate purchase is for your business facilities, not investment property.

Businesses that Qualify

The SBA defines a small business as one that has a, tangible net worth less than $15 million and an average net income less than $5 million after taxes for the preceding two years. If your business earns more than this or has earned more than this within the past two years, you won’t qualify for SBA loans, at least not the 504 loan. The SBA also takes into account your business activities. For example, if you are a nonprofit organization or work in financing yourself, you won’t qualify.

The SBA and its funding partners also favor certain business types when considering a 504 application. Because the loan program is designed to boost the economy through business development, it favors minority, rural and women-owned operations. It also favors businesses that work with what are called Certified Development Companies, or CDCs. A CDC is a nonprofit set up in an area specifically to develop it and thereby its economy.

It Doesn’t Hurt to Apply

Even if you don’t meet the above criterion, your business may still qualify for an SBA 504 loan. If it doesn’t, there are other funding options. Contact one of the partners that offer SBA loans to discussyour financing needs. You will be required to fill out a loan application and provide all requested documentation in order for your loan to be approved, but it will be worth the effort. Once approved, you will receive your funding under extended terms to make loan remittance a breeze.