THE SBA 504 LOAN APPLICATION PROCESS
An SBA 504 loan is a small business administration loan offered by the federal government and provides assistance to small business owners. A 504 loan provides individuals wishing to start or grow business long-term, fixed-rate financing for major assets such as buildings and land.
Most types of businesses are eligible with the exception of those related to sex, gambling, loan brokering and farming provided they are located in a MSA with a population of 25,000 or greater. Such loans offer a multitude of options in regard to terms, fees, and interest rates. When it comes to collateral, an SBA 504 loan will generally require the real estate as well as all property and equipment owned or to be purchased by the business. Eligibility guidelines include but are not limited to size standards set by the SBA, and must not exceed a net worth of $7.5 million. In addition, average net incomes should not exceed $2.5 million dollars after taxes for two years preceding a loan requester application.
Proceeds from funds may be used to purchase land or be used to improve land and current buildings. You may also use the funds for upgrading, providing street improvement and utilities, or adding parking lots and landscaping. Funds are also used to renovate or modernize existing structures or to purchase equipment or machinery for long-term use. Applicants should be advised that 504 SBA loans are not allowed to be used as working capital, or to repay debt, refinance, or consolidate other loans.
504 loans are generally secured with liens by private-sector lenders that may help to cover up to 50% of project costs with the remaining funds coming through the sale of a debenture by the SBA. Requirements for qualifying for a small business loan may also require individuals to present business profiles, loan request amounts, description of collateral desired, and basic financial statements of both the business and individual applying for the loan.
Other important financial statements and documents must include at least three years of balance sheets, incomes statements defining profits or losses, as well as cash flow projections. In addition, lenders may also wish to see accounts receivable and payable from 30 to 90 days old. Financial statements will include personal statements, as well as tax returns for the past three years, as well as those of business partners. Such statements should also list personal liabilities, assets, and monthly payments due. In addition, applicants should be able to provide a projection of operations for a least one year into the future. Other items that may be necessary for the application process include contracts, partnership agreements, leasing agreements, purchase agreements, copies of licenses and letters of intent.
While SBA 504 loan application documents require time and effort to accumulate and present, qualifying standards for such loans are more flexible than other types of loans. Always check guidelines to make sure adequate documentation has been gathered, and if in doubt, ask! Doing so will save time and effort and avoid aggravation.
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