SBA 504 Loan

PeopleFund offers the SBA Microloan for small businesses, the 7A Community Advantage for growing businesses, and the SBA 504 Loan for businesses looking to expand through purchase of commercial real estate or long-term equipment.

Untitled-3The SBA 504 loan is designed for the procurement of long-term assets such as land, buildings, and equipment with a useful life expectancy of at least 10 years. It may not be used for working capital, inventory, real estate investment properties, or vehicles. Projects that have been financed by 504 loans include office buildings, retail stores, restaurants, and daycare centers.

As a small business owner, you can use the SBA 504 loan for many purposes. It may be used for:

  • Purchase of land (with intention to build)
  • Purchase of existing building
  • Construction of new buildings
  • Renovating, expanding, or upgrading existing buildings
  • Construction contingency reserve
  • Machinery and equipment with a  useful life of 10 or more years
  • Some furniture and fixtures

The loan isn’t designed to be used for working capital or inventory, debt refinance or consolidation, or investment in rental real estate.

Advantages of the Loan

SBA 504 Loan typical financing structure graphBorrowers may finance up to 40% of the cost of a project at a competitive fixed interest rate over a 10 or 20-year span putting down as little as 10% in equity. (Businesses in operation less than two years are considered startups by the SBA, and require the borrower to put up at least 15% of total project costs.) The loan also allows borrowers to roll eligible soft costs into project financing.

Ineligible Businesses

  • Nonprofits (charitable, religious, government entities)
  • Real Estate investment firms
  • Firms involved in speculative activities
  • Dealers of rare coins and stamps
  • Firms involved in lending activities
  • Businesses involved in pyramid sales plan
  • Passive businesses
  • Private clubs and businesses that limit membership
  • Businesses primarily engaged in promoting religion
  • Businesses primarily engaged in political activities

Ineligible Use of Funds

  • Working Capital
  • Inventory
  • Goodwill Assets from business acquisition
  • Franchise fees
  • Tenant improvements
  • 100% of loan proceeds to consolidate debt

Here’s what the SBA has to say about the 504 Loan

How the SBA 504 Loan Works

Since SBA 504 Loans are tandem loans, their approval relies upon participation from more than one lender. PeopleFund works with other lenders to help finance up to 90% of the project’s total cost. Does it sound too good to be true? The SBA’s goal with the 504 program is to develop rural areas, elevate underrepresented entrepreneurs (women, minorities, and veteran small business owners), and improve areas in need of economic development. The 504 loan also works to promote LEED certified projects and environmentally sustainable construction, reduced energy consumption, and helps areas impacted by federal budget cutbacks.

The goal of 504 Loan Program has as its public policy goals to promote rural development, support women, minority, and veteran-owned businesses, revitalize economic development areas, provide aid to areas impacted by Federal budget cutbacks, promote LEED certified projects and support projects that reduce energy consumption by at least 10 percent.

Loan

  • Maximum $5 million/$5.5 for manufacturing

Borrower’s Injections and Fees

  • 10% in most cases
  • 15% for Start-up Businesses
  • 15% Special Purpose Property
  • 20% if the project is both start-up and Special Purpose Property
  • Fees will vary depending on loan amount and project, please contact us to learn more.

Think the SBA 504 is for you? Contact our team.

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