Top Three Tips for Small Businesses Applying for an SBA 504 Loan
The SBA 504 loan program is the premier 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, freeing up capital reinvest in the business
- Below-market interest rates lower and more affordable monthly mortgage payments
- Long-term rates 10 (typical for equipment purchases), 20 or 25 year fixed no surprise balloon payments
For small businesses interested in an SBA 504 loan, here are three tips for the application process:
Know your numbers and your need
When applying for an SBA 504 loan, the first step is to know how much capital is needed and for what purpose. Be able to clearly explain how the funds will be used and how it will benefit the small business. Also, provide a detailed business plan and financial projections that are based in reality to support the loan request.
Provide complete and accurate loan documentation
One of the top reasons loans stall in the application process is because of incomplete or inaccurate documentation. The more quickly a borrower provides the required documents, the faster a project will progress toward funding. Click here to view a list of key documents 504 borrowers should have prepared.
Be up front with your CDC and business lender
The SBA 504 program requires three key players, a small business borrower, a Certified Development Company (CDC), and a third party lender (i.e. bank or credit union). CDC’s, like SomerCor, are nonprofit corporations that originate and service 504 loans on behalf of the SBA.
Both the CDC and third party lender will be reviewing financial documents and underwriting the loan. If there are any negative elements that may impact creditworthiness, such as bankruptcy or pending litigation, be forthright with that information. This allows an opportunity for the underwriters to learn about the business and provide guidance that may mitigate weaknesses.
Download the program flyer and connect with a member of SomerCor’s loan origination team to learn more about how the SBA 504 loan program is a great fit for family businesses.
