While the United States Small Business Administration (SBA) and its loan programs have always played a crucial role in the advancement of small businesses, one of their main players, the 504 Loan Program, plays an important role. by helping businesses grow, strengthen and recover. .
The 504 loan program was designed to serve as an economic development tool by providing businesses with access to quality and affordable capital while encouraging job creation. The program is so named because it was originally created by Section 504 of the Small Business Investment Act of 1958.
This unique financing option provides small businesses with long-term, fixed-rate financing, which is most often used to purchase, build, or refinance fixed assets, typically buildings or equipment. Nationally, in fiscal 2020, 504 loans saw double-digit increases, fueling $ 5.8 billion in new capital investment for 7,000 businesses across the United States. But why, during a pandemic, would 504 loans see double-digit growth? Because the terms are unlike anything else on the market.
Access to money
With the 504’s refinance option, borrowers can leverage their building equity and choose to withdraw cash for qualifying business expenses, such as salaries, inventory, credit cards, etc. etc. It’s a great way to restructure and possibly consolidate existing debt while also accessing an infusion of money that can be trapped in your building.
Lower monthly payments
In addition to helping businesses access cash immediately, 504 loans increase the availability of working capital in the future. The program’s long repayment periods reduce monthly mortgage payments by spreading amortization up to 25 years. In addition, borrowers can save thousands of dollars by freezing current fixed rates below market rates. In fact, the 504’s fixed effective rates remained well below 3% for much of 2020.
Less money down
The 504 loan structure is unique, offering lower down payments than most conventional loans … typically only 10 percent. (Start-ups and single-use facilities require a slightly higher equity contribution.) Essentially, there are three parties involved – your investment banker (50%), a certified development company (CDC), such as Growth Corp (40%), and the borrower (10%). With this structure, up to 90% of the total project is funded from sources outside your pocket.
Budgeting and long-term planning just got easier with fixed, predictable monthly expenses and no future lump-sum payments to worry about.
Most businesses are eligible
Most for-profit businesses are eligible to receive 504 funding, provided they average less than $ 5 million in annual after-tax profits and $ 15 million in net worth. Plus, most national, regional, and community banks participate in the program, so you can probably stick with the lender you already use for your commercial banking.
Whether you’re looking to access cash, control overheads, or expand to meet increased demand, the 504 has you covered and can help lead the way. Learn more about the 504 loan program at www.growthcorp.com/sba504.
• Sara Vanhala is Director of Marketing and Communications for Growth Corp.