A 504 loan provides fixed asset financing to eligible small businesses. Loan purposes include acquisition of land and buildings, construction of facilities and for purchasing capital equipment. The program does not lend for working capital or to refinance existing long term debt. Loans are made to operating small businesses for facilities that they will use in their own operations. We do not lend for speculative or rental properties or for residential development.
Under the SBA 504 loan program project loan to value ratios of up to 90% are obtained for established businesses purchasing or building general-purpose real property and fixed assets. We work in cooperation with banks and private lenders who make senior loans for 50% or more of the project while we make second position loans for up to 40% of the project. Lower loan to value ratios are sought for new business ventures and for special purpose property. Loan terms are 20 years for real property and 10 years for equipment.
The 504 program provides a long term, fixed rate loan. We have provided some examples of typical projects and loan structures.
The 504 loan program is also an economic development program available to eligible small businesses undertaking projects which create jobs or meet other defined community development goals. Fees and loan costs are by standard SBA guidelines. Interest rates are set at the time of loan funding and are the typically the lowest rates available to small business concerns. The SBA 504 portion can range in size from $50,000 to $1,300,000.