What's going on with the 504 loan program?

There's something about the SBA 504 loan.

• The numbers seem to work. Borrowers put down as little as 10 percent. Rates are low and fixed - 20 years for real estate uses and 10 for equipment purchases.

Banks finance half the amount, with a guarantee from the Small Business Administration. Federally certified nonprofit development companies (CDCs) that administer the 504 loan program cover 40 percent. Fees are a factor in every loan, but the SBA eliminated a one-time guarantee paid by the borrower and reduced an ongoing monthly fee for the federal fiscal year that began October 1.

• The loans can be used to purchase land, including existing buildings; finance new construction or renovate existing facilities; cover improvements such as utilities and grading; and purchase long-use equipment and machinery.

• The SBA lists 11 eligibility requirements for small businesses seeking a 504 loan, including a tangible net worth less than $15 million and average net income of less than $5 million after taxes for the previous two years.

So what's not to like? Something, because the SBA's Illinois District Office in Chicago reports that only 300 Section 504 loans were made in the state during FY 2015, which ended September 30.

Karen Lennon, president of Chicago-based Wessex 504 Corp. and the only 504 corporation executive I reached last week, thinks recession-scarred business owners are "still a little tentative.

"We (504 corporations) finance big ticket items, and it's a long decision process if you're buying a building," Lennon acknowledges. "But business owners are coming around."

Bankers and some of Lennon's counterparts perhaps should come around, too. There were 12 CDCs that made 504 loans in Illinois during FY 2015; 120 banks participated. (Start with www.sba.gov/il for the Illinois office's Third Party Lender/CDC Performance Table for FY 2015 to get names.)

Essentially half of the 504 loans in Illinois (147, to be exact) went through Small Business Growth Corp., Springfield. Closer to home, Somercor 504, Chicago, packaged 86 loans; Wessex 504, 29 and Rockford Local Development Corp., 18. Of the dozen 504 CDCs, six did only one 504 loan.

Numbers are similar on the banking side. Ranked by the SBA on number of loans, JPMorgan Chase was the most active 504 lender in Illinois. The bank made 26 such loans, more than double second place American Chartered Bank's 12. Only five banks in the state made as many as 10 504 loans; 66 did just one.

Bank loan data are important because 504 loans tend to originate with financial institutions.

Lennon is optimistic, however. About half of the bankers Wessex 504 dealt with last year were new to the 504 loan. "Bankers who go through the (504) process realize how easy it is," she says. "Then they start recommending the 504 as an option to qualified borrowers."

That's one reason Lennon thinks Wessex 504 could double its loan activity this year.

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