If you are interested in 504 loans, knowing their structure is key. With that in mind, today we take a closer look at this popular type of SBA loan, including its characteristics, maturity terms, and structure.
What Are 504 Loans?
The 504 Loan Program is a long-term, fixed rate loan program offered by the Small Business Administration (SBA) to help businesses acquire major fixed assets such as real estate or equipment.
504 loans are provided through Certified Development Companies, or CDCs (nonprofit organizations certified by the SBA), and SBA-approved banks and credit unions.
These loans feature low interest rates, low down payments, and repayment terms of up to 25 years.
Eligibility requirements for 504 loans include being a for-profit, owner-occupied small business with a tangible net worth of less than $15 million and net income of no more than $5 million.
How Are 504 Loans Structured?
Now that you’re familiar with the basics of 504 loans, we can take a look at the structure. A typical 504 loan is structured as follows:
- A loan secured from a private lender with a senior lien covering up to 50% of the project cost
- A loan secured from a CDC (backed by a 100% SBA-guaranteed portion of the loan) with a junior lien covering up to 40% of the total cost
- A contribution from the borrower of at least 10% equity
Note that this is just a typical structure and in certain situations you may be required to contribute up to 20 percent of the total project cost. The CDC is in charge of coordinating and structuring the loan between the parties.
If you have any questions or want to learn more about 504 loans, feel free to contact our experts. We stand ready to answer your questions and help you find the financing solution that makes sense for you and your organization.
Gellyfish: Certainty of Execution in Commercial Loans
At Gellyfish Commercial, we offer commercial real estate financing solutions with the certainty of execution you need to take your business to the next level.
We are located in Riverside, and work with clients all over California and beyond. Contact us today by email (email@example.com), telephone (877-800-4493), social media (Facebook, Twitter, LinkedIn), or through the live chat on our home page to schedule a free consultation.