SBA 504 Program: A proven economic recovery tool

By Brian Comiskey
Updated 12/14/2021 2:54 PM

The COVID-19 pandemic and the resulting mitigation policies impact every American, but small business owners continue to face unprecedented challenges and uncertainty.

With the timing and nature of the economic recovery unknown, small businesses have leveraged the U.S. Small Business Administration for resources. SomerCor, a small business lender certified by the SBA, is proud to play a part in the agency's role in providing access to capital to entrepreneurs during this crisis through the SBA 504 program.


The 504 program is a public-private lending solution for small business owners to buy, expand or refinance major fixed assets -- commercial real estate, equipment and machinery.

Here are three points highlighting how the 504 supports improved cash flow and liquidity for small businesses during these economically challenging times.

Low fixed interest rates

The SBA 504 program has several borrower-friendly elements, including requiring less money down, loan payment predictability and fixed 20- or 25-year terms. But perhaps the most attractive feature of the program is the below-market interest rate. In November 2021 the interest rate for the 25-year SBA 504 loan was 2.92% as compared to bank commercial real estate loan rates of 3.25%-4.75%.

Lower interest rates mean lower and more affordable monthly mortgage payments, freeing up capital to improve cash flow and reinvest in the business.

Additionally, in times of high inflation, business owners can benefit from the higher advance rate provided by the SBA 504 program since the expectation is that future dollars have significantly less purchasing power than current dollars. Likewise, since the interest rate on the 504 loan is fixed for 20 or 25 years, this mitigates the risk of rising rates and provides predictability in managing real estate costs.

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Stability and liquidity

The only certainty is uncertainty. As we continue to navigate through the pandemic and a unique economic recovery, the need for liquidity is paramount. Businesses need additional working capital for purchasing additional inventory, absorbing short-term losses, increasing safety measures or possibly investing in a potential acquisition opportunity. The 504 program typically requires only 10% equity, which enables the business owner to retain more cash for short-term needs.

In addition to the borrower-friendly terms of the 504 loan, refinance clients can take cash out for eligible expenses. The cash-out piece ranges up to 20% of the appraised value of the property. Eligible expenses for cash-out funds include non-owner salaries, rent, utilities, inventory and a business line of credit or business credit card debt. The refi is a great option for existing businesses to save on monthly payments and improve cash flow to address more immediate issues.

Proven performance

The 504 program has a history of being an important economic recovery tool. Since the start of the pandemic, the 504 program has seen unprecedented demand, leading to the largest annual loan volume in the history of the program at $8.2 billion in fiscal year 2021. This represents a 41% increase in lending volume from the prior year as more lender and borrowers take advantage of the benefits of the 504 program.

Now is the time to explore how the SBA 504 program can best serve your business financing needs, through current challenges and beyond.

• Brian Comiskey, CPA, is the executive vice president and chief credit officer at SomerCor.

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