What is SBA 504 Loan?
The Short Answer
SBA 504 Loan explained simply
The SBA 504 loan program helps small businesses get long-term, fixed-rate financing. It's mainly for buying or improving real estate, land, or major equipment. The loan is split into three parts: a bank provides up to 50% of the project cost, the Small Business Administration (SBA) provides up to 40% through a Certified Development Company (CDC), and the business owner contributes at least 10% as a down payment. This structure makes it easier for businesses to get funding for large purchases that help them grow.
Real-World Example
Buying a New Office Building
Let's say a small manufacturing company wants to buy a new office building for $1,000,000. With an SBA 504 loan:
- A bank lends $500,000 (50%).
- A CDC, backed by the SBA, lends $400,000 (40%).
- The business owner puts down $100,000 (10%).
This allows the company to acquire the building with a lower down payment and a long-term, fixed-rate loan.
Why this matters
SBA 504 loans are important because they help small businesses get the capital they need for big investments. This type of financing often has better terms than conventional loans, like lower down payments and longer repayment periods. It helps businesses expand, create jobs, and contribute to the economy.
SBA 504 loans are great for buying real estate, but they have specific rules. Make sure your project fits the criteria and you understand the down payment requirements.
SBA 504 loans are great for buying real estate, but they have specific rules. Make sure your project fits the criteria and you understand the down payment requirements.
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