BORROWING WITH SBA 504 –SMALL BUSINESS LOAN PROGRAM
As a Certified Development Company (CDC), NEPA Alliance Business Finance
Corporation (NEPA-BFC) is authorized by the Small Business Administration to
provide small businesses affordable fixed rate financing with the SBA 504 Loan
Program. These funds can be used for expanding business needs including real
estate, machinery and equipment purchases.
The SBA 504 Loans offers:
- Long Term Financing
- Competitive, Fixed Interest Rates
- Low Down Payments
Some 504 Benefits
Down payments as low as 10%
Financing tailored to meet borrower’s needs
Conserves working capital for operations
10 or 20 year fixed rate financing
Consistent monthly payments
Small Business Owner Options
Asset purchases can be structured for the owner to put the title in the personal
name of the owner, in the name of the business entity or in the name of a holding
company for the property. Multiple businesses can qualify for a 504 loan by
creating a real estate holding company. That approach has been beneficial to
professionals in the legal, accounting, medical and veterinary fields.
Small Business Access to Wall Street Financing
Funding is provided by the SBA selling a 10- or 20-year bond to investors on Wall
Street. This enables small business owners access to funds at fixed, low interest
rates, typically only available to large corporations. These bonds are attractive to
investors since they are guaranteed by the full faith and credit of the U.S. Treasury.
The Three Partners Provide a Share
Your bank typically finances 50% of the project cost with a commercial loan at
current market rates. The lender may also provide a construction loan (also
known as bridge or interim financing), that is paid off from the proceeds of the SBA
504 loan. The SBA finances up to 40% of the project cost, and the small business
borrower provides a down payment that can be as low as 10%.
An SBA 504 loan is a partnership between the Small Business Administration (SBA),
a CDC (NEPA-BFC), and a lender. CDCs like NEPA-BFC are economic development
organizations that have been certified by the SBA to process 504 loans. While the
SBA has final say over approval of loan applications, NEPA BFC works with the small
business borrower to process, approve, close and service the SBA 504 loan. NEPA-
BFC is committed to making the process as smooth as possible for all involved.
Loan Amounts Up To $5.5M
The SBA 504 loan amount is linked to the number of jobs that will be created or
retained by the project. A small business applicant must create and/or retain
jobs OR meet a community development goal or public policy goal (i.e. minority,
veteran or women owned business) to qualify for an SBA 504 loan. As a guide, an
entrepreneur can borrow $65,000 in SBA 504 loan funding for each job created
and/or retained within two years of the project’s completion.
There is no project cost limit, but the SBA can lend you up to 40% of the total cost
up to $5,000,000 depending on the type of project. NEPA BFC, using SBA 504 loan
funding, can go as high as $5,500,000 for eligible manufacturing projects and for
projects that incorporate energy saving technologies for sustainable design.
The term of SBA 504 loans are for 10 or 20 years depending on use of the funds.
When the SBA sells the bond to fund the loan the interest rate for the loan is
determined and fixed.
The monthly payment includes program fees and a loan loss subsidy fee that are
added onto the interest and principal payment. These loan fees are financed as
part of the loan and are not required as a closing expense for the small business
There are no balloon payments for SBA 504 loans since they are fully amortized.
However, there is a prepayment premium for the first half of the loan term
that decreases each year.
How You Qualify
An applicant has to be operating a U.S. based for-profit business, structured as
a corporation, sole proprietorship, partnership, LLC, etc., that, collectively has a
tangible net worth of less than $15 million and profit after taxes of less than
The business must also occupy at least 51% of its property for existing buildings
or 60% of a newly constructed building.
If two or more unrelated small businesses combine to meet occupancy
requirements, they can receive an SBA 504 loan.
SBA 504 loans can NOT be used for working capital, mortgage broker fees,
bridge or interim loan during the construction period, business inventory or
rolling stock (i.e. vehicles).
Businesses owned by persons who do not have permanent legal resident
status, businesses having restrictions on patronage, are government-owned,
are a consumer or marketing cooperative, are engaged in loan packaging, have
previously defaulted on a federal loan, are engaged in political or lobbying
activities, or are speculative businesses are all ineligible.
How Do You Get Started 1, 2, 3
1. Contact a loan officer at NEPA BFC to review and evaluate your project and your
business. The loan officer will assist you to structure the financing to meet your
2. Then contact your bank for a meeting to determine if they will participate by
providing the permanent first mortgage and the interim construction loan
for your project. It is likely your bank has an SBA or government-guaranteed
lending advisor who is familiar with SBA 504 loans.
3. Complete and submit your application for an SBA 504 loan, and once approved,
begin your project.
In the last 40 years over $59 billion has been loaned through the SBA 504
program and Two million jobs have been created or retained through over
125,000 loans nationwide.