Here are some answers to Frequently Asked Questions about the SBA 504 Loan Program through SEDA-COG:
1. Can the SBA 504 program provide 100% financing for my project?
No. The SBA 504 program can provide up to 40% of a project’s financing. For start-up businesses or those in operation for less than two years, the maximum participation is 35%. If real estate is involved in a project that is special-purpose in nature, the SBA 504 loan will be reduced by 5%.
2. How much of my own money do I need to bring into the project?
For existing businesses, the equity (cash) requirement is 10% of the project cost. For start-ups or businesses in operation for less than two years, the equity (cash) requirement is 15% of the project cost. If a building is involved in the project and it is special-purpose in nature, an additional 5% equity (cash) is required. In some cases, existing equity in real estate can be used toward the borrower’s participation.
3. What is the typical loan amount through the SBA 504 loan program?
Historically, the average size of an SBA 504 loan through SEDA-COG is around $500,000. The minimum loan amount is $50,000 and the maximum loan amount is $5 million ($5.5 million for Public Policy Goal projects).
4. I have a start-up business idea. Can the SBA 504 loan program help me with financing?
Yes. While most of the companies we work with are established businesses, we can help finance start-up enterprises. Start-ups will require minimum equity (cash) injection into the project of 15%. A completed business plan is also required. Check with your local Small Business Development Center for help developing a business plan.
5. How long is the term of the SBA 504 loan?
For equipment with a useful life of at least 10 years, the term of the SBA 504 loan would be 10 years. For real estate projects, the term of the SBA 504 loan could be 20 or 25 years. In some cases, shorter-term fixed assets may be included in either the 10, 20, or 25-year term. For mixed-used projects (equipment and real estate), the term will typically be determined by the greater cost between the equipment and real estate to determine whether the loan would qualify for a 10-year or 20/25-year term.
6. Can I refinance my existing debt through the SBA 504 loan program?
Refinancing of existing real estate or equipment debt may be eligible. If the refinancing is part of an expansion project the amount of the refinancing would be limited to the cost of the new expansion project.
7. What is the interest rate for the SBA 504 loan?
The interest rate for SBA 504 loans is based on the sale of U.S. Treasury Bonds. The rate changes every month until a loan is disbursed, then it becomes fixed for the life of the loan. Check here for the latest rates.
8. Is the SBA 504 loan available to service and retail establishments?
Yes. The SBA 504 loan program is eligible for service and retail establishments.
9. Are real estate developers eligible for the SBA 504 program?
No. The SBA 504 loan program is designed for owner-occupiers of real estate. For purchases of real estate, the eligible small business must occupy at least 51% of the square footage of the building(s) on the property. For real estate construction projects, the eligible small business must occupy at least 60% of the square footage immediately, with at least another 20% occupied within 10 years. Only 20% of the space can be leased out on a permanent basis. Real estate holding companies may own the real estate, but an eligible small business must be tied to the loan and through the lease satisfy the occupancy requirements. Real estate holding companies can only be involved with leasing the building to the eligible small business. It cannot own other real estate that is leased out to third parties.
10. Are shopping centers, rental housing, or apartments eligible for SBA 504 financing?
No. Businesses that are primarily engaged in owning or purchasing real estate and leasing it for any purpose are not eligible, such as shopping centers. Businesses that generate income by renting space to accommodate independent businesses that provide products or services directly to the public are not eligible. Apartment buildings and residential facilities that are not licensed as nursing homes or assisted living facilities and do not provide healthcare and/or medical services are not eligible. Hotels, motels, RV parks, and campgrounds are eligible if more than 50% of the business’s revenue for the prior year (or projected for start-up enterprises) is derived from transients who stay for 30 days or less at a time and the business complies with all zoning and other legal requirements.