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.

Minority SBA Loans

There is a common mis-perception that minority loans are not profitable for small business loan lenders.  This is 100% not true.  According to the Kauffman foundation, minority small business loans can be very successful for lending institutions with am average net return of $1 million dollars per investment.  Along with women business owners, minority owned small businesses are the largest growing sector is the United States.

Minority owned small businesses are one the of the largest growing sectors in the United States

Many government and private associations put funds aside each year for funding minority owned small businesses.  The Minority Business Development Agency (MBDA) is the only government agency 100% dedicated to the growth and success of minority owned small businesses.  The MBDA provides funds to a network of Minority Business Development Centers (MBDC’s), Native American Business Development Centers (NABDC’s), and Business resource Centers (BRC’s).  All of these centers have a focus of consulting minority owned business owners in the areas of business plan writing, financial planning, technical assistance, growth marketing, and entrepreneurship so they can one day become fund-able small businesses.

The Small Business Administration (SBA) does not offer grants to start or grow a small business however, they do guarantee loans up to $250,000 dollars.  You can visit one of your local SBA offices to find out what you need to be approved for an SBA loan.  SBA loan requirements are pretty strict and require that you have a good business credit score with all three business credit reporting agencies, have a professionally written business plan, and a business loan application with proper financials.  Without these items it is going to be quite difficult to prove to a lender that you are a low risk small business borrower.

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Wells Fargo and Bank of America have been known to be the nations top minority small business loan lenders.  Before you do anything try to visit one of your local Wells Fargo or Bank of America’s and see what their guidelines are to be approved for a minority SBA loan.

Lastly, another good funding resource for minority owned businesses are the small business investment companies (SBIC’s).  These are privately owned companies monitored by the SBA and offer venture capital and debt financing solutions for minority owned small businesses.