What are the Qualifications for SBA 504 Loans?

The small business administration has a number of loans that could be right for your company. If you’re looking at expanding in either land or machinery SBA 504 loans may be one option you want to consider. Before you apply you may want to know more about the process and qualification criteria. Keep reading to learn more about this loan type, if you qualify, and if it may be right for you.

What are 504 Loans

Before you start looking into if SBA 504 loans are the right choice for your company you may first want to know what they are. These loans are geared toward small businesses and provide long-term fixed financing. The loans are meant to be used for the modernization or expansion of the business. The SBA guarantees the loan through a certified development company or CDC. A CDC works with the borrower and their chosen lending institution to cover the cost of the loan. In most cases the CDC will cover 40 percent and the lending institution 50 percent of the loan. The borrower is then responsible for the remaining 10 percent. The CDC may choose to maintain a second lien with the first lien belonging to the bank until the loan is repaid.

The Qualifications

In order to qualify for this loan type your business must first fall within the size standards set by the SBA. The business must also be operated for profit, and met a set net income and net worth requirements for at least two years prior to submitting an application. If your company is involved in any passive, speculative, or non-profit activities you will be considered ineligible for this loan type. It is recommended that you contact a local CDC for more information and exact eligibility requirements for your area.

What They are Used For

A 504 loan is intended to cover the costs of expansion or modernization. This could mean a building or land purchase, acquiring necessary equipment or furniture, or updates or renovations to an existing company property. In some cases the loan may also cover any debt refinancing related to a business’s previous expansion or modernization project.

If you operate a small business for profit and mean both the new worth and net income requirements you may be eligible. Once you understand what SBA 504 Loans are and what’s needed to qualify you can begin deciding if this is the right option for your business. Remember, if you have any questions your local CDC can help.

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