Greetings valued readers! Are you a small business owner looking for funding options? Have you heard about the SBA 504 loan program but aren’t sure about the loan limits? Look no further! In this article, we will dive into the details of SBA 504 loan limits and provide you with a comprehensive guide.
What is the SBA 504 loan program?
The Small Business Administration (SBA) 504 loan program is designed to help small businesses acquire fixed assets to promote economic growth. This program provides long-term, fixed-rate financing for major fixed assets, such as real estate and equipment.
Small businesses can use the funds to purchase, construct, renovate, or expand buildings, as well as purchase major equipment. However, these loans cannot be used for working capital, inventory, or debt refinancing.
How do SBA 504 loans work?
Through the SBA 504 loan program, small businesses can borrow up to $5.5 million with a fixed interest rate for up to 25 years. This loan program requires a down payment of at least 10% of the total project cost, with a 50% loan from a Certified Development Company (CDC) and a 40% loan from an SBA-approved lender.
The CDC portion of the loan is backed by a 100% SBA-guarantee, while the SBA-approved lender portion is backed by a partial guarantee.
SBA 504 Loan Limits: What You Need to Know
1. Maximum Loan Amount
The maximum SBA 504 loan amount is $5.5 million for standard borrowers and $5.5 million for manufacturing borrowers. Additionally, small businesses can qualify for the SBA 504 loan program with a tangible net worth of less than $15 million and an average net income of less than $5 million for the past two years.
2. Minimum Loan Amount
The minimum loan amount for the SBA 504 loan program is $125,000.
3. Maximum Project Cost
The maximum project cost that can be financed through the SBA 504 loan program is $15 million. This amount includes the total cost of the project, including land, building, and equipment expenses.
4. Maximum SBA 504 Loan Amount for Energy Projects
For energy-efficient or renewable energy projects, small businesses can qualify for a maximum SBA 504 loan amount of $5.5 million.
5. Definition of Small Business
For the SBA 504 loan program, a small business is defined as having a net worth of less than $15 million and an average net income of less than $5 million for the past two years.
6. Eligible Use of SBA 504 Funds
The SBA 504 loan funds can be used to purchase or construct owner-occupied commercial real estate, purchase equipment or machinery, or make improvements to existing facilities. However, the funds cannot be used for working capital or for refinancing existing debt.
7. Interest Rates
The interest rates for the SBA 504 loan program are fixed and typically lower than other commercial loans. The rate is determined by the current market rate at the time the loan is funded plus an additional spread.
8. Maximum Loan Term
The maximum loan term for the SBA 504 loan program is 25 years for real estate and 10 years for equipment. However, the loan term cannot exceed the useful life of the asset being financed.
9. Collateral Requirements
The SBA 504 loan program requires collateral for the loan, such as the assets being financed. However, the SBA does not require a lien on personal assets, such as a primary residence.
10. Credit Requirements
The SBA 504 loan program requires a minimum credit score of 680 for the primary borrower and any guarantors. Additionally, the borrower must have a good credit history with no recent bankruptcies or foreclosures.
11. Fees
The SBA 504 loan program requires fees, including a one-time processing fee of up to 3.5% of the total loan amount and an ongoing annual fee of up to 0.625% of the outstanding balance.
12. Prepayment Penalties
The SBA 504 loan program allows for prepayment of the loan without penalty, as long as certain conditions are met.
13. Loan Approval Process
The SBA 504 loan process is typically longer than other commercial loan processes due to the need for approval from both the CDC and the SBA-approved lender. Therefore, it is important for small businesses to plan ahead and allow for extra time in the loan process.
SBA 504 Loan Limits Table
Loan Amount |
$5.5 Million (standard and manufacturing borrowers) |
|---|---|
Minimum Loan Amount |
$125,000 |
Maximum Project Cost |
$15 Million |
Maximum SBA 504 Loan Amount for Energy Projects |
$5.5 Million |
Eligible Use of SBA 504 Funds |
Owner-occupied commercial real estate, equipment, and improvements to existing facilities |
Interest Rates |
Fixed and determined by the current market rate at the time of funding plus an additional spread |
Maximum Loan Term |
25 years for real estate and 10 years for equipment |
Collateral Requirements |
Assets being financed |
Credit Requirements |
Minimum credit score of 680, good credit history with no recent bankruptcies or foreclosures |
Fees |
One-time processing fee of up to 3.5% of the total loan amount and ongoing annual fee of up to 0.625% of the outstanding balance |
Prepayment Penalties |
None, as long as certain conditions are met |
Loan Approval Process |
Takes longer than other commercial loan processes due to approval from both the CDC and SBA-approved lender |
SBA 504 Loan Limits FAQs
1. How long does it take to receive an SBA 504 loan?
Due to the need for approval from both the CDC and the SBA-approved lender, the SBA 504 loan process typically takes longer than other commercial loan processes. Small businesses should plan ahead and allow for extra time in the loan process.
2. Can SBA 504 loan funds be used for working capital?
No, SBA 504 loan funds cannot be used for working capital or for refinancing existing debt. These loans are specifically designed to help small businesses acquire fixed assets to promote economic growth.
3. What is the maximum loan amount for the SBA 504 loan program?
The maximum loan amount for the SBA 504 loan program is $5.5 million for both standard and manufacturing borrowers.
4. What are the eligibility requirements for the SBA 504 loan program?
Small businesses must have a tangible net worth of less than $15 million and an average net income of less than $5 million for the past two years. Additionally, small businesses must use the funds to purchase, construct, renovate, or expand buildings or purchase major equipment.
5. What collateral is required for the SBA 504 loan program?
The SBA 504 loan program requires collateral for the loan, such as the assets being financed. However, the SBA does not require a lien on personal assets, such as a primary residence.
6. What are the credit requirements for the SBA 504 loan program?
The SBA 504 loan program requires a minimum credit score of 680 for the primary borrower and any guarantors. Additionally, the borrower must have a good credit history with no recent bankruptcies or foreclosures.
7. Are there prepayment penalties for the SBA 504 loan program?
No, the SBA 504 loan program does not have prepayment penalties as long as certain conditions are met.
8. What is the interest rate for the SBA 504 loan program?
The interest rates for the SBA 504 loan program are fixed and typically lower than other commercial loans. The rate is determined by the current market rate at the time the loan is funded plus an additional spread.
9. Can SBA 504 loan funds be used for debt refinancing?
No, SBA 504 loan funds cannot be used for debt refinancing. These loans are specifically designed to help small businesses acquire fixed assets to promote economic growth.
10. What is the minimum loan amount for the SBA 504 loan program?
The minimum loan amount for the SBA 504 loan program is $125,000.
11. What is the maximum project cost that can be financed through the SBA 504 loan program?
The maximum project cost that can be financed through the SBA 504 loan program is $15 million. This amount includes the total cost of the project, including land, building, and equipment expenses.
12. What is the maximum loan term for the SBA 504 loan program?
The maximum loan term for the SBA 504 loan program is 25 years for real estate and 10 years for equipment. However, the loan term cannot exceed the useful life of the asset being financed.
13. What fees are associated with the SBA 504 loan program?
The SBA 504 loan program requires fees, including a one-time processing fee of up to 3.5% of the total loan amount and an ongoing annual fee of up to 0.625% of the outstanding balance.
Conclusion
Now that you have a comprehensive guide to SBA 504 loan limits, you can confidently make informed decisions about whether this loan program is right for your small business. With fixed interest rates, longer loan terms, and unique benefits, the SBA 504 loan program can be a valuable resource for small businesses seeking to acquire fixed assets to promote economic growth.
Don’t wait any longer to take advantage of this opportunity! Contact your local SBA-approved lender or CDC to find out more about the SBA 504 loan program and how it can benefit your small business.
Closing Disclaimer
The information provided in this article is for informational purposes only and should not be construed as legal, financial, or tax advice. Small businesses should consult with their legal, financial, or tax advisors before making any decisions regarding the SBA 504 loan program. The authors of this article do not guarantee the accuracy, completeness, or usefulness of any information provided and are not responsible for any errors or omissions.