What the SBA 504 Loan Offers

The purpose of the SBA 504 Loan Program is to provide developing, expanding businesses with long-term below market fixed rate financing for the acquisition of land and building, machinery and equipment, and construction and renovation. Established by Congress in 1986, the 504 Loan Program is the first national financing program to recognize contributions of small and medium sized businesses toward economic development and job growth in the U.S. The 504 Program provides financing that is specifically designed to meet those needs.

Eligible Borrowers

  • For profit businesses (corporation, partnership or proprietorship)
  • Tangible net worth not to exceed $15 million
  • Net profit after taxes not to exceed $5 million during previous 2 years

Maximum Amount

  • Up to 40% of eligible cost, with a $5,000,000 debenture maximum. Manufacturers are eligible for up to $5.5 million. Total project size is unlimited

Use of Funds

  • Purchase of land
  • Construction of building
  • Modernization, renovation or improvement of building
  • Purchase of machinery or equipment with useful life of 10 years or more

Financing Method

  • Private lender provides 50% of project cost and the Small Business Administration 504 loan provides 40%

Equity Requirements

  • Minimum borrower requirement is 10%

504 Loan Terms

  • Maximum of 40 % of project – 504 loans are fully amortized
  • Terms of 20 years for real estate and 10 years for machinery and equipment
  • Fixed, below market interest rate
  • Total fees of 3% plus attorney closing fee. These fees can be included in the 504 loan amount and financed over a 20-year term.

FoundationCapital prides itself on the ease of facilitating a 504 loan and works hard to alleviate any undue stress during the application process. In order to expedite your loan application, included below is a list of some of the SBA required documents. Other requirements will be given to you in detail by a Loan Officer with Capital Solutions.

The items below are required of each proprietor, partner or stockholder with 20% or more ownership in the borrowing entity or operating company (small business).

A detailed history and description of the business and ownership of operating company and real estate

  • A Personal History Statement – SBA Form 912
  • A Personal Financial Statement – SBA Form 413
  • Balance Sheet and Income Statement for the previous 2 years for the operating company and all affiliates
  • If the company is a new business, provide a proforma balance sheet with a description of assumptions and projects
  • Interim Balance Sheet and Income Statement dated within 90 days of application
  • Projected, annualized income statement for the first two years after loan funding
  • For a new business, a monthly cash flow analysis for the first 12 months of operation or three months beyond the break even point, with assumptions
  • Copy of key cost documents such as: purchase and sale agreement, contractor cost estimates, vendor quotes for machinery and equipment
  • One year personal tax returns on all guarantors.

The loan rate is determined by market at the sale of a participation in a pool of government guaranteed securities. The rate is fixed for the term of the SBA/FoundationCapital loan.  Generally, the rule of thumb in projecting a rate is the 10 year Treasury rate, plus 210 base points.  Market rates are allowed on the private lending portion (50% of project).