Q: What can an SBA 504 Loan be used for?
A SBA 504 Loan is designed to finance the purchase of fixed assets – owner occupied real estate and machinery and equipment. More specifically, the 504 Program can be used to:

  • Purchase land and an existing building
  • Purchase land and build a new building
  • Renovate or expand an existing building
  • Purchase machinery and equipment with at least a 10 year life
  • Make a fixed asset based business acquisition
Q: How does the SBA 504 Program work?
A third party lender (TPL – usually a commercial bank, a private equity fund or an individual investor) provides 50% or more of the project financing, with the Small Business Administration (through Access BDF) 35% – 40% and the borrower contributes 10% – 15%.
Q: How does the TPL – SBA lending partnership work?
After the TPL and the SBA have each issued the borrower a loan approval and commitment to finance their portion of the project cost, the borrower contributes it’s equity injection and the TPL closes a construction or bridge loan with the borrower for the balance of the project cost. Then, upon completion of the project, the SBA permanent loan is closed. The SBA note is then sold on Wall Street and a debenture is created in exchange for private funds. The debenture funds are then returned by the SBA to the TPL and the TPL then releases the initial construction or bridge loan and issues the borrower a permanent note for the TPL’s portion of the project.

This TPL – SBA partner lending program may sound a little complicated, but in reality, Access BDF works “hand-in-glove” with the TPL and the SBA from the beginning of the “Access Loan Progression Cycle” to the end, to make the process as seamless as closing one conventional loan.

Q: Does the use of a 504 Loan delay financing?
Provided the borrower is able to provide project information and financial documents quickly, Access BDF can pull together a 504 Loan package very quickly. Whether an SBA loan or a conventional bank loan, appraisals and environmental reports often create financing delays. Nevertheless, everything being equal, Access BDF can routinely meet the demands of a 45 day turn-around. We always recommend bringing Access BDF into the process as early as possible in order to keep the loan approval process as short as possible.
Q: Is Access BDF a part of the SBA?
No. Access BDF is an independent non-profit Certified Development Company (CDC) authorized by the SBA to originate and service SBA 504 Loans throughout the State of Ohio. There are approximately 270 CDC’s operating in the U. S. today.
Q: If I have a project already underway, is my project eligible for financing under the 504 Program?
Yes. There is, however, a nine month look-back provision in the 504 Program. Thus, any project eligible project expenses incurred within the past 9 months may be included and financed.
Q: Is there a limit on the amount of a 504 Loan?
Yes. While there is no limit on the total size of any single project, an SBA debenture is limited to $5 million, or $5.5 million if certain public policy goals are met. The minimum amount of a borrower’s equity injection is 10% of the project cost with no maximum and the minimum participation amount of the TPL is 50% of the project cost with no maximum.
Q: May I use my current bank as the TPL partner?
Absolutely. And the bank does not have to be located in Ohio. So long as the project is located in Ohio, Access BDF may originate the loan. If your project is located in another state, Access BDF will be more than happy to locate and partner with a CDC in that state.
Q: Why should I use the 504 Program to finance machinery and equipment instead of a capital lease or a conventional bank loan?
The term for most capital leases and conventional bank loans to finance machinery and equipment is a maximum of 7 years. Provided the useful life of the machinery and equipment is a minimum of 10 years, the monthly debt service payments on the 504 Loan will be less than the capital lease or conventional bank loan. And, if the useful like can be determined to be 20 years or more, the monthly debt service payments will be dramatically lower.
Q: Why choose the SBA 504 Loan Program over the SBA 7a Loan Program to finance fixed assets?
The 504 Program offers lower fixed rate financing for the full term of the 504 portion of the loan, while the interest rate offered by a commercial bank will tend to be higher than the 504 rate and will adjust, at minimum, every 5 years.
Q: Is the 504 Program only for small business financing?
Absolutely not. Mid-size business that are profitable may also qualify for 504 financing so long as the SBA debenture on the project does not exceed the $5 – $5.5 million limit.