About the SBA's 504 Financing Program

The SBA hopes to encourage small businesses growth by offering incentives such as lower interest rates and no-fee contracts with its financing programs. With the SBA's 504 Program, companies can get long-term, fixed-rate financing to use for "brick and mortar"-related financing needs such as building or growing facilities, buying property or refinancing mortgages. Fixed-rate financing often requires the borrower pay 10 percent of the total price of the loan.

About 504 Fixed-Rate Financing

Fixed-rate financing means the annual percentage rate remains the same for the entire life of the loan's contract. The 504 Program is not for working capital, cash flow, inventory, paying debt or refinancing other than mortgages.

To qualify for 504 financing, the business must be making a profit and meet the SBA's standards in company size. Other requirements include a tangible net worth under $7.5 million and an average net income less than $2.5 million after taxes in the two years before requesting the loan. You can ask for a side-by-side chart comparing the 504 loan to a conventional commercial mortgage loan.

Other Things to Know about 504 Financing

Those that pursue the 504 option may still need "gap financing" because the deal could include a 60- to 90-day delay between closing and government funding. The lender behind the 504 loan often does the gap financing. However, beware it might carry more requirements and fees. Government loans especially the ones involving stimulus money can turn into a waiting game and lead to higher or unexpected fees.

Contact the SBA office nearest you or a certified development corporation (CDC), an authorized government partner in the 504 Program. These are nonprofits in good standing working to help small businesses grow. The SBA can help you find CDCs and tell you which lender issues more 504 loans.

Even though the 504 loan comes from the government's Small Business Administration (SBA), it may not be the best deal for you. Make sure you research financing options, compare fees, time frames and terms, ask questions and know your needs before pursuing a financing deal whether it's with a private lender or elsewhere.

In working with any SBA loan, it's vital to ensure the loan meets all of the requirements and doesn't break any SBA rules. So you may want to look beyond government loans to specialty or private lenders.