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Maximization for Manufacturers: Three Reasons to Use the SBA 504 Program

10/24/2024|SomerCor|Business Owner Resource, Manufacturing, SBA 504

According to the Illinois Manufacturers Association, Illinois is the fourth largest manufacturing state in the country, with more than 18,000 companies employing over 590,000.

SomerCor is proud to support small businesses in the manufacturing sector through the SBA 504 loan and refinance programs. Here are three ways the 504 maximizes stability, capacity, and cash flow for manufacturers:

Provides Access to Ownership

The SBA 504 loan program is an economic development initiative administered by the Small Business Administration (SBA). This public-private partnership provides a long-term fixed rate lending solution for small business owners to buy, expand or refinance major fixed assets – such as land, commercial real estate, equipment, and machinery. The program requires three key players – a small business borrower, a Certified Development Company (CDC), like SomerCor, and a third party lender (i.e. bank or credit union).

For a manufacturer looking to purchase their facility, the final loan structure typically requires the third party lender provide 50% of the financing, the CDC to provide up to 40% of the financing backed by a 100% SBA-guaranteed debenture, and the applicant puts down 10% of the financing. These borrower-friendly terms provide manufacturers a pathway to ownership and growth:

Low down payment – up to 90% financing for established businesses
Below-market interest rates – lower and more affordable monthly mortgage payments, freeing up capital reinvest in the business
Long-term rates 10, 20, or 25 year fixed – no surprise balloon payments

An additional benefit for manufacturers is that the maximum SBA loan amount per project (debenture) is $5.5 million as opposed to $5 million for all other industries.

Flexibility to Expand Capacity

Building ownership is just the start of the SBA 504 loan. The structure of the program allows borrowers to not only purchase commercial real estate, but to make critical updates that allow manufacturers to meet new demand. 504 loans funds can be used for:

Expansion, construction, and renovation of a new or existing facility – personalized for optimum efficiency, safety, and flexibility to grow
Heavy fixed equipment to expand capacity and streamline operations
Upgrades and modernizations to reduce energy use or offset that consumption through the use of renewable energy

Leverage Equity for Cash Out

For manufacturer business owners who already purchased their facility, the SBA 504 Refi is a great option to save and improve cash flow. Conventional loans, as well as debt subject to a federal guarantee, such as an SBA 7(a) or 504 loan, are eligible for refinance.

In addition to the lower monthly mortgage payments, fixed 20 or 25 year low interest rate, and payment predictability of the 504 loan, Refi clients can take cash out for eligible expenses. Eligible expenses for cash out funds include: