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Financing the 504 Way

One of the biggest challenges you face as a business owner, next to starting your own business, is taking it to the next level.

As a seasoned entrepreneur who has successfully navigated around the pitfalls that cause early business failure, you’re ready to grow, then financing your continued growth becomes an issue.

Enter the SBA 504 loan program, especially designed to help small businesses at this juncture.

Also called the Certified Development Company/504 Program, this is a long-term financing tool for economic development within a community. It provides growing businesses with long-term, fixed-rate financing for major fixed assets, such as land, buildings and machinery and equipment.

CDCs are nonprofit corporations set up to contribute to the economic development of their communities. They work with the SBA and private-sector lenders to provide financing to small businesses.

A 504 refinancing project has three components: a direct commercial loan from the private sector covering 50 percent of the project, and secured by a senior lien; a loan secured with a junior lien from the CDC covering up to 40 percent of the cost, and backed by a 100 percent SBA-guaranteed debenture; and a contribution of at least 10 percent equity from your business.

This type of SBA loan has some specific requirements that businesses have to meet in order to qualify. They have to meet job creation criteria or a community development goal, and public policy goals. The 504 Program cannot be used for working capital or inventory, consolidating or repaying debt.

Under the new Small Business Jobs Act signed into law by President Obama on Sept. 27, 2010, the maximum size of the SBA portion was increased from $2,000,000 to $5,000,000 ($5,500,000 for manufacturers) as well as allowing, for the first time, the ability to refinance existing commercial mortgages.

As with the SBA’s more widely known loan guaranty program, 504 loans are designed to help the small business owner be successful. Interest rates on 504 loans are pegged to an increment above the current market rate for five-year and 10-year U.S. Treasury issues. Maturities of 10 and 20 years are available. Fees total approximately 3 percent of the debenture and may be financed with the loan.

The CDC/504 Program is a great option for continuing the growth of your company. For more information about this program, or any of SBA’s programs and services, please visit