The SBA 504 Loan Program allows small businesses to purchase fixed assets with government-guaranteed loans. Loans are secured through a combination of funding from a conventional lender and a Certified Development Corporation. Only small for-profit businesses with net income less than $2.5 million USD and net worth less than $7.5 million USD are eligible. The maximum amount that can be borrowed depends on government-set goals for the program.
The US Small Business Administration (SBA) 504 Loan Program is a financing vehicle that allows small businesses to purchase fixed assets with government-guaranteed loans. Program loans are secured through a combination of funding from a conventional lender, such as a bank, and a Certified Development Corporation (CDC). A CDC is a community-based nonprofit organization funded by the federal government to support economic development in a specific geographic area.
Businesses do not receive SBA loans. Instead, it guarantees loans granted by a private entity, such as a bank, in the event of default. If the small business defaults on the loan, the SBA repays the lender, so the lender has no reason not to give the loan since there is no risk of loss. The SBA monitors the program by setting eligibility requirements for its guarantee.
SBA 504 loans are available for small businesses to purchase capital or fixed assets. Fixed assets are tangible business property that have a useful life that extends beyond the current accounting cycle, such as real estate, manufacturing facilities and major equipment. The purpose of the program is to enable small businesses to modernize and expand, while stimulating the country’s economy.
Only small for-profit businesses with net income less than $2.5 million US dollars (USD) and net worth less than $7.5 million USD are eligible for SBA 504 loans. The program also evaluates entrepreneurs and makes them ineligible for SBA 504 loans if they have tangible personal net worth of more than $15 million USD. This is to prevent wealthy owners from using government-backed funds designed for businesses that can’t get a loan without a guarantor instead of investing their own money in their business.
The enterprise must be able to bear at least 10% of the acquisition cost, or more if the enterprise is less than two years old or if the asset is classified for a special purpose. A conventional lender lends up to 50 percent of the purchase price. CDCs lend up to forty percent of the cost. Both the conventional loan and the CDC loan are guaranteed by the SBA.
SBA 504 loans have a maximum amount that can be borrowed based on government-set goals for the program. For example, if the asset helps the company create jobs, the company can borrow up to $1.5 million dollars. If the company is a small producer, it can borrow up to $4 million dollars. Eligibility thresholds, amounts that can be borrowed, and funding goals and objectives will change each time the legislation funding the program is renewed.
Smart Asset.
Protect your devices with Threat Protection by NordVPN
