Do you know about the Small Business Administration (SBA) 504 loan program? If not, you should.
Why 504? Why now more than ever?
Using a 504 loan, eligible businesses can finance up to 90% of the costs of buying or improving real estate and related equipment, as much as 40% of the costs fixed for up to 25 years at the SBA’s historically low rate of 2.602%. The current prime rate is 3.25%.
The 504 program is a participation loan with a bank and the SBA. The borrower can get up to 90% loan to value (LTV), with a conventional loan from a financial institution you may have to put down between 20%- 30% of your own cash, and the bank will only lend 70% or 80% of your property’s value.
How it works: a borrower with at least two years of operating history contributes 10% equity. The bank provides up to 50% of the project and takes a first mortgage, the SBA provides up to 40% and takes a second mortgage and the borrower puts 10% down.
The SBA portion:
40% of the purchase price
20 or 25 years
February’s rate starting at 2.602%, fixed rate for the term of the loan
2.60% rolled into the SBA mortgage
Use of Proceeds:
- Purchase of owner-occupied commercial real estate. Borrower must occupy at least 51% of the property
- Improvements to the property may be included in the overall project
- Major equipment
- Soft costs such as site and zoning approval, and appraisal and environmental report costs
- Investment properties
- Working capital
- A/R Financing
Remember, benefits include: Up to 90% financing of your project, including renovations and up to 40% of costs financed for 25 years at historically low fixed rates.
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