SBA 504 LOAN PROGRAM OVERVIEW
The SBA 504 Loan Program offers the following benefits usually not available with conventional bank financing to small and medium sized businesses:

• Up to 90% financing, requiring as little as 10% down.
• A below-market fixed interest rate for the term of the loan.
• A loan term of up to 20 years on the SBA 504 second mortgage.
• Financing of almost all closing costs and loan fees.

The primary purpose of the SBA 504 Loan Program is to create and preserve jobs. This is accomplished by providing small businesses with permanent financing for the acquisition of real property and improvements, construction and expansion of buildings, and purchase of machinery and equipment.

Borrowers must meet certain eligibility criteria to be considered a small business, and the SBA 504 project must be structured in accordance with SBA regulations. Under the SBA 504 program, a lender, such as The Lending Source, provides a conventional first mortgage loan. Generally, the first mortgage loan is up to 50% of the project cost, the SBA second mortgage loan is up to 40% of the project cost, and the Borrower has a minimum equity contribution of 10% of the project cost.

SBA’s share of a project is reduced by 5% in the event of a start-up business and/or 5% in the event of special-purpose real estate collateral. This results in an increase to a Borrower’s minimum equity contribution of 5% in the event of a start-up business and/or 5% in the event of special-purpose real estate collateral.

In order for a small business to obtain an SBA 504 loan, the small business must utilize the services of a Certified Development Company (“CDC”) which is a qualified intermediary with SBA for the 504 Loan Program. CDC’s are nonprofit organizations authorized by SBA to make loans in the SBA 504 Loan Program on behalf of SBA. CDC’s are responsible for processing SBA 504 loans, submitting them to SBA for approval, and closing and servicing them.

To learn more about Certified Development Companies and the SBA 504 loan program, please find the following valuable resources:

• The U.S. Small Business Administration

• The National Association of Development Companies