Title: What Is an SBA 504 Loan and How Can It Help My Small Business?

If your small business is ready to purchase real estate, build a new facility or invest in major equipment, an SBA 504 loan may be worth discussing with your banker.

The SBA 504 Loan Program is designed to provide long-term, fixed-rate financing for major fixed assets that support business growth and job creation. Unlike financing designed primarily for working capital, a 504 loan focuses on significant, long-term investments in your business.

What can an SBA 504 loan be used for?

Eligible uses can include purchasing land or an existing building, constructing or renovating a facility, improving property, and purchasing qualifying long-term machinery or equipment. Certain qualified debt may also be eligible for refinancing.

A 504 loan cannot generally be used for everyday working capital, inventory or investment in rental real estate.

How does an SBA 504 loan work?

A typical 504 project combines financing from a private-sector lender, such as a bank, with financing through a Certified Development Company (CDC). In a common structure, the bank finances up to 50% of the project, the CDC/SBA-backed portion covers up to 40%, and the borrower contributes at least 10%. Actual requirements can vary by project.

SBA 504 financing offers 10-, 20- and 25-year maturity options depending on the asset, and the SBA-backed portion provides a long-term fixed rate.

Who can qualify for an SBA 504 loan?

Generally, an eligible business must be a for-profit operating company located in the United States, meet SBA size and eligibility requirements, demonstrate an ability to repay the financing and use the funds for an eligible purpose.

When does a 504 loan make sense?

The 504 program can be particularly attractive for established small businesses making a major investment in their future. Think of a manufacturer purchasing equipment, a growing company buying its own building or a business constructing a new facility rather than continuing to lease.

It isn't the right financing tool for every project, and that's exactly why talking with an experienced banker matters.

At Bank Michigan, we believe financing should start with understanding where your business is today and where you want to take it next. Before assuming which loan is right for you, talk with your local banker about your goals, available options and whether SBA financing could be part of your next move.

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