FAQs About SBA Loan Requirements and Eligibility
Q: What role can SBA 504 financing play in the U.S. economy?
A: At the national level, SBA 504 loans give small businesses access to what is consistently the least expensive financing available in the commercial marketplace. This equates to a substantial economic stimulus exactly where we need it most: for the innovative small businesses that constitute 79 percent of the job creation in this country and over half of private sector employment. The very businesses that will lead us out of our economic crisis. At the local level, this means a vacant commercial property in a neighborhood can represent an opportunity for a small business owner who needs more space. The current economic climate may actually be the right time to consider expanding into that larger facility or simply seizing the chance to buy that first facility for a thriving small business at a very advantageous price.
Q: What loan amounts are available with the SBA 504 loan program?
A: The maximum SBA 504 loan is $5.5 million. There is no maximum total project cost. The SBA portion cannot exceed 40 percent of the eligible project costs.
Q: What amount of equity is required from the borrower for the SBA 504 loan program?
A: The minimum equity injection is at least 10 percent of the total project cost. In addition, if the project involves the purchase or construction of a single-purpose facility, the required equity injection increases by five percent. If the business is new (less than two years old), the required equity injection also increases by an additional five percent. Start-up businesses need to be sufficiently capitalized.
Q: What are the terms of the SBA 504 loan?
A: SBA 504 loans used for the expansion or acquisition of real estate have a term of 20 years, while equipment loans typically have a term of 10 years. The SBA 504 loan has a low interest rate, which is fixed for the term of the loan. The interest rate is based on a spread over the current market rate for 10-year U.S. Treasury issues and is determined when the loan funds.
Q: What collateral is taken to secure the SBA 504 loan?
A: Collateral taken to secure the SBA 504 loan typically includes a second mortgage on the land and building or a second lien on the equipment that is financed.
Q: Can you refinance existing debt with the SBA 504 program?
A: SBA 504 loans can be used for the refinance of eligible debt along with an expansion through the purchase of new or renovated facilities or equipment. This expansion project can include up to 50% of additional funds for debt refinancing. This restructuring of eligible debt will help improve businesses cash flow, enhancing their viability and support growth and job creation. For more information on this, contact a MBFC Business Development Officer.