SBA 504 loans are tailor-made for business owners who want to acquire or develop their own facilities. Forget everything you’ve ever heard about the U.S. Small Business Administration (SBA). Wipe the slate clean. The negative connotations may have been warranted in the past, but the SBA is different these days. It’s no longer a four-letter word. And like many things in our modern, technology-laden world, even the SBA has become user-friendly. The SBA is worth every penny of its more than $24 billion budget on the basis of a single program alone: the SBA 504 Loan Program for small business owners who want to acquire or develop their own facilities.

Lots of entrepreneurs -- and far too many bankers, ironically -- dismiss the SBA on the basis of its 7(a) lending program that always seems to be in a crisis needing supplemental appropriations. The 7(a)’s reputation may or may not be deserved, but some of its negativity has managed to soil other effective and lesser-known SBA programs.

SBA 504 loans, by contrast, are a dynamo. They work; they work well; and unfortunately with some of the historical problems in the SBA’s 7(a) program, a dark shadow has hung over 504 loans for too long making many people unaware of their virtues. In fact, for some time now, I have heard many otherwise knowledgeable lenders ignore 504 loans based on faulty and out-dated information. Entrepreneurs, real estate brokers, accountants and franchisors are gradually waking up to the fact that 504 loans were designed to level the playing field for small business people in the marketplace. With 90% loan-to-cost financing of most commercial real estate projects (inclusive of land/existing building, hard construction, FF&E, plus soft and closing costs), 504 loans are very powerful. Borrowers with 504 loans get long-term, below-market, fixed-rate financing at better terms than are available from any private sector lender. That’s correct -- you didn’t read that wrong -- SBA 504 loans for commercial property offer the least expensive money available to most small business people. For most of the past 3 years (2004 to 2006), the SBA bond rate (which usually makes up 40% of the total project costs or 44% of the actual loan amount) has hovered near 6% fixed for twenty years. Loan terms on the first mortgage portion (usually 50% of the total project costs or 56% of the actual loan amount) are usually 25 years with no balloon payments and loan fees more inline with conventional lending than with other SBA programs. And if all of that wasn’t good enough, borrowers generally put a third to half as much money down for 504 loans (usually only 10% of the total project costs), thus enabling them to grow their businesses much faster while getting the highest cash-on-cash return for their new real estate investment.

Last year, 504 loans helped fuel about $14 billion in total capital investments for 9,720 small businesses throughout the U.S. These loans also helped create about 112,000 new jobs through reinvestment of the “equity savings” small business owners experienced. In addition to helping create jobs, the 504 loan program is about capital preservation and cash-flow sensitive lending -- it enables smaller business owners grow their business more quickly than they otherwise could. SBA 504 loans rank as one of the most effective domestic economic development programs the federal government oversees with its funding having grown about 22 percent a year since 2000. So far, every qualified 504 loan proposal my company has submitted to the SBA has been approved and funded, or is about to be funded. The notorious SBA hiccups of the past have been banished through their own process improvements and the emergence of specialists. Lending amounts for 504 loans are generally not capped or limited and only non-public, for-profit businesses qualify. Three financial qualifications, however, set some limits as to who can get a new 504 loan: the borrower’s small business must have a tangible business net worth under $7 million; the operating company’s net income for the previous two years must average less than $2.5 million annually; and the borrower(s)/guarantor(s) cannot have liquid, non-retirement assets greater than the total project amount to be financed. Despite these restrictions, the field of qualified businesses is not as limited as one would think. In fact, over 98 percent of all businesses in Florida, for example, qualify for SBA 504 loans based on the criteria just mentioned – a similar percentage applies nationwide as well.

Page 1 of 2 :: First | Last :: Prev | 1 2 | Next