The purpose of the SBA 504 Loan Program is to provide developing, expanding businesses with long-term below market rate financing for the acquisition of land and building, machinery and equipment and construction and renovation. Established by Congress in 1986, the 504 Loan Program is the first national financing program to recognize contributions of small and medium sized businesses toward economic development and job growth in the U.S. The 504 Program provides financing that is specifically designed to meet those needs.

Eligible Borrowers

• For profit businesses (corporation, partnership or proprietorship)
• Tangible net worth not to exceed $7.5 million
• Net profit after taxes not to exceed $2.5 million during previous 2 years

Maximum Amount

• Up to 40% of eligible cost, with a $2,000,000 debenture maximum. Manufacturers are eligible for up to $4,000,000.00 (Please request details)
  Total project size is unlimited

Use of Funds

• Purchase of land
• Construction of building
• Modernization, renovation or improvement of building
• Purchase of machinery or equipment with useful life of 10 years or more

Financing Method

• Private lender provides 50% of project cost and the Small Business Administration 504 loan provides 40%

Equity Requirements

• Minimum borrower requirement is 10%

504 Loan Terms

• Maximum of 40 % of project – 504 loans are fully amortized
• Terms of 20 years for real estate and 10 years for machinery and equipment
• Fixed, below market interest rate
• Total fees of 2.65% plus attorney closing fee. These fees can be included in the 504 loan amount and financed over a 20-year term.

SBA 504 LOAN > EXAMPLE

An SBA 504 loan from FoundationCapital is typically used for owner-occupied commercial real estate.

Example:

A total project costing $1 million would break down as follows:

Purchase of land and buildings                                                            $800,000.00

Renovations                                                                                               $100,000.00

Machinery or Equipment                                                                     $ 50,000.00

Soft Costs (Professional fees, closing costs, etc.)                              $ 50,000.00

TOTAL                                                                                                      $1,000,000.00

The financing for the project would break down as follows:

For the SBA 504 portion of the project, the borrower benefits from a 20-year, fixed rate which is normally below market prices. In addition, the borrower is typically only required to put down 10% of the total project cost which does not have to be in cash.

Equity can be as low as 10%. Equity increases by 5% for a start-up operation and/or 5% for special use property as designated by the SBA. Equity therefore can range form 10 – 20%.

504 Loan Terms

1. Maximum of 40 % of project – 504 loans are fully amortized
2. Terms of 20 years for real estate and 10 years for machinery and equipment
3. Fixed, below market interest rate

Total fees of 2.65% plus attorney closing fee.  These fees can be included in the 504 loan amount and financed over a 20-year term.