Why small businesses are choosing SBA 504 at an unprecedented pace

  • Sara Vanhala

    Sara Vanhala

 
By Sara Vanhala
Growth Corp
Updated 5/3/2022 12:06 PM

While the U.S. Small Business Administration (SBA) and its loan programs have always played a crucial role in the advancement of small businesses, one of their key players, the 504 Loan Program, is actively helping businesses hedge against inflation.

SBA 504 loans offer long-term, fixed-rate financing of up to $5 million to buy, build, or renovate commercial/industrial facilities; to finance machinery and equipment; and/or to refinance existing real estate debt(s) into a long-term, fixed-rate loan.

 

Demand for 504 loans has skyrocketed the past couple of years. Here are just some of the reasons why, as inflation soars, small business owners are choosing the 504 Loan Program at an unprecedented pace.

Long-term fixed interest rates

SBA 504 loans allow business owners to secure fixed-interest rates that are extremely competitive (often at or below prime). Combined with longer repayment terms (up to 25 years) and lower owner-equity requirements (typically 10%), it's hard to find a better option anywhere. The SBA 504 allows business owners to get off the roller-coaster of variable rate loans and to instead lock in predictable, long-term, fixed-rate financing.

Less money down

The structure of 504 loans is unique, offering lower down payments than most conventional loans ... typically just ten percent. (Startups and single-purpose facilities require a slightly higher equity contribution.) There are three parties involved -- your business banker (50%), a Certified Development Company (CDC), such as Growth Corp (40%), and the small business owner (10%). With this structure, as much as 90% of the project is financed from sources outside of your own pocket.

A path to ownership

The 504 was designed to make building ownership possible for small business owners by pairing it with the best terms on the market. Owning the building that houses your business is often more cost-effective than soaring rental costs. Plus, there are long-term investment benefits of owning an asset that increases in value over time, including potential tax benefits. Furthermore ... as the building owner, you're free to customize the facility to fit your needs.

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Predictable overhead costs

By securing a fixed-interest mortgage, your monthly principal and interest payments stay the same over the life of your loan (as opposed to rent payments, which likely increase annually; or variable-rate loans, which can fluctuate with interest-rate increases). Budgeting and long-term planning become easier with predictable, fixed monthly expenses and no future balloon payments to worry about.

Most businesses qualify

Most for-profit businesses are eligible to receive 504 financing, so long as they average less than $5 million in annual after-tax profits and $15 million in net worth. Typical 504-eligible businesses include manufacturing, retail, industrial, professional offices, and all types of medical facilities.

Support from a local CDC

A CDC is a nonprofit organization that promotes economic development within its community through 504 loans. CDCs, such as Growth Corp, are designed to help strengthen local businesses by connecting them with quality financing for fixed asset investments. This, in turn, supports local economies, revitalizes neighborhoods, and breathes new life into communities. Plus, CDCs work in conjunction with local banks so you can stay with the lender you already use for your business banking.

Whether you're looking to mitigate uncertainty and/or build security for tomorrow, the 504 has you covered. Learn more about 504 Loans at www.growthcorp.com/sba504.

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