Business Insights: Think big about the Small Business Administration 504 Loan
When most people envision small businesses, they typically imagine mom-and-pop shops. However, the Small Business Administration (SBA) 504 loan extends financing to startups through mid-size companies. It’s time to think big about the SBA 504 loan program and its wider economic impact.
SBA 504 Loan Basics
The SBA 504 loan program is one of the most popular financing programs offered by the SBA. This lending solution provides a long-term, fixed rate for business owners to build, buy, and refinance fixed assets — like commercial real estate and heavy equipment. The 504 borrower-friendly terms include:
- Low down payment — up to 90% financing for established businesses;
- Below-market interest rates — lower and more affordable monthly mortgage payments;
- Long-term fixed rates — 10, 20 or 25 years — with no surprise balloon payments.
SBA’s Premier Economic Development Initiative
The SBA 504 is not a loan of last resort, but the SBA’s premier economic development initiative with a well-established framework and an over 30-year track record. Over the lifetime of the program, $5.9 billion in SBA 504 financing has supported Illinois businesses.
The SBA 504 loan program plays a vital role in supporting small business owners and fostering community growth. By providing affordable financing options for acquiring real estate and fixed assets, the program empowers entrepreneurs to expand their businesses, create job opportunities, and contribute to local economic development. As these businesses grow, they not only strengthen their own financial stability but also stimulate economic activity within their communities, spurring further job creation, infrastructure improvement, and overall prosperity.
SBA 504 Program Updates to Serve More Businesses
To help larger businesses thrive, the SBA has improved its 504 loan program. Now, businesses with up to $20 million in tangible net worth (previously $15 million) and up to $6.5 million in average net income after taxes (previously $5 million) can qualify.
These updates, along with affiliation rule changes, offer more flexibility for mid-size businesses. Ownership in other businesses no longer affects eligibility if they're unrelated and have less than 50% ownership. This opens doors for entrepreneurs with diverse ventures.
Additionally, for manufacturing projects, the size standard is based on employee count, sometimes up to 1,500 employees. Manufacturers can also access higher loan amounts, with a maximum of $5.5 million per project compared to $5 million for other industries.
The SBA 504 program has grown from simply an initiative to encourage traditional lenders to provide loans to small businesses. It now serves businesses from startups to mid-size companies and familiar local brands. It serves a dual purpose — both providing financing to the applicant and having a direct positive economic or policy impact on the surrounding community.
Connect with a member of the SomerCor team at www.somercor.com to learn how the SBA 504 loan can help your business or your business client.
• Margaret Griffin is EVP, Chief Lending Officer at SomerCor.