Growth Opportunities for Manufacturers: SBA 504 Equipment Loans

Right now manufacturers in Illinois face both increased labor challenges and avenues for growth. The purchase of new equipment is a pathway for manufacturers to address workforce shortages and take advantage of new opportunities.

SomerCor is a proud member of the Technology & Manufacturing Association and partners with small and mid-sized manufacturers to finance the purchase of equipment and heavy machinery with the SBA 504 loan program. Learn how the 504 program can help manufacturers diversify operations, increase efficiency, and offset energy costs with new equipment below:

SBA 504 Basics

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 heavy machinery. The 504’s borrower-friendly terms include:

• 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 (typical for equipment purchases), 20, or 25 year fixed – no surprise balloon payments
• Maximum SBA loan amount per manufacturing project (debenture) is $5.5 million as opposed to $5 million for all other industries.

New Equipment for New Product

The addition of new equipment can create growth by allowing the expansion into a new line of goods. For example, SomerCor has a client who offers packaging design and manufacturing, automated warehousing, inventory tracking, and shipping for their customers. They used an SBA 504 loan to purchase a new machine to support a growing 6 pack carrier product line primarily sold to the beer industry. As a result, they built enough new business to support a membership in the Brewers Association and participate in the annual Craft Brewers Conference.

Automation for Acceleration

Hiring, training, and maintaining skilled team members is an area of focus for manufacturers. In addition to talent acquisition and apprenticeship initiatives, incorporating new equipment can expand capacity for current product lines and streamline operations to address workforce shortages. Additionally, the pandemic highlighted the challenges of protecting employees working in close proximity to each other. The addition of new and more efficient equipment can reduce the risks involved with multiple people working in close spaces.

Plus, the 504 loan is not limited to heavy equipment. Manufacturers can also use it to expand, construct, or renovate a new or existing facility – personalized for optimum efficiency, safety, and the flexibility to grow. One SomerCor client used the 504 program to build a 162,000sqft state-of-the-art space built to company specifications that merged all operations under one roof.

Save Money by Going Green

The SBA 504 Green Loan Program allows manufacturers to make upgrades and modernize equipment, while enjoying the borrower-friendly terms of a standard 504 loan. To be eligible, the improvements must reduce energy use by at least 10% or offset that consumption through the generation of at least 15% renewable energy. An additional benefit for participants in the green program is that small businesses can secure multiple loans, with no maximum aggregate in SBA financing. Plus, making energy efficient upgrades reduce energy costs over the long-term. It is also an opportunity to tie company brand identity to the fight against climate change.

Interested in learning more? Download one-page flyers on the 504 loan program and connect with a member of our loan origination team today!