SBA Commercial Loan

SBA Commercial Loan - Growing your business!

SBA commercial loan funding is just what the Small Business Adminstration is about. So, if you are thinking about borrowing money (debt financing) from a bank, but are unable to . . . then consider obtaining financing from the Small Business Administration (SBA).

What does that mean? This federal agency loans no money itself, but instead guarantees 75 percent of individual loans made by private lenders, up to $750,000 (making the maximum loan amount $1 million).

How does this happen? When you go to a bank to ask for a loan, they need sufficient collateral from you or your request will be rejected.

What is the criteria? All business owners (or sharholders) that have twenty percent (20%) or more ownership are required to personally guarantee SBA loans.

The SBA also considers your good character, management capability, and owner's equity contribution.

SBA 504 Loan Program

The SBA 504 loan program is one of the SBA’s more popular small business loans for small businesses that are looking to purchase major fixed assets such as land, commercial property, or major equipment.  These SBA loans are long term fixed rate loans offered by Certified Development Companies (CDC’s).  A CDC is a private non-profit organization that is dedicated to the economic development of it’s community.  CDC’s work with the SBA and private small business loan lenders to provide financing for small business. 

SBA 504 loans are not for working capital but for fixed asset projects such as property, commercial real-estate, and major equipment

In order for a small business to be approved for an SBA 504 loan you must be able to prove to the CDC’s, SBA and SBA qualified lender that you are a low risk small business borrower.  To be a low risk small business borrower you must have a good business credit score with the three main business credit reporting agencies, a professionally written SBA certified business plan, and a business loan application with proper financials.  With all three of these, being approved for an SBA loan is going to be extremely tough.

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How SBA 504 Loan Funds May be Used
The money you will receive from be approved for a SBA 504 loan can be used in three main ways:

 - Purchasing land, improvements to land, commercial buildings, streets, parking garages, and utilities.
 - Construction of new facilities or the modernization of existing facilities.
 - Purchasing long-term machinery or equipment.

SBA 504 loan funds cannot be used for working capital, refinancing purposes, or paying off debt.

Eligibility
In order to eligible to be approved for an SBA 504 loan your business must be a for profit business and fall within the size limits created by the SBA.  Based on the SBA guidelines, a small business is qualified as small if it has a tangible net worth of less then $7.5 million and does not have a average net income in excess of $2.5 million after taxes for the processing two years.  These loans cannot be made to businesses that are looking to have investment or rental properties.

Interest Rates and Fees
SBA 504 loan interest rates are based on what each CDC lender underwriting guidelines are.  They are usually pegged above the standard market business loan rates for 5 and 10 years US Treasury issues.  Fee’s are a total of 3% of the debenture and if approved may be financed within the loan.