Each year thousands of entrepreneurs approach (Small Business Administration) SBA lenders looking to apply for funds through the broad array of funding options. The SBA program has a funding instrument for all types of small business ventures – including those focusing on owner-occupied commercial real estate.
The SBA 504 Loan or Certified Development Company (CDC) as it is often referred to, is popular with borrowers in the market to invest in real estate, construction, or any type of machinery. Loans of this type can require a large infusion but the maximum amount a business can look to receive from the SBA is $5 million. Approval requirements for these loans are much higher due to the amount and the lender you choose will definitely want to see a stellar credit score and strong financials with your application package.
Repayment terms for a 504 loan are longer and they typically range anywhere from 10 to 20 years. As a general rule, SBA lenders will want to see the applicant put 10% of the purchase price down. For example, if the building costs $1 million, the lender will ask the borrower to make a down payment of $100,000. Lastly, SBA lenders require that any property being purchased under the 504 program must be 51% owner-occupied within one year of the purchase date. If the property is newly constructed, 60% of it must be used by the owner with plans to increase to 80% within one year.
In order to qualify for an SBA 504 loan, there are three eligibility requirements that must be met. The first one involves net income. To qualify for a loan of this type, the company’s average net income can’t be more than $5 million after taxes for two years preceding your application submission. Next, your next worth cannot exceed $15 million dollars. Finally, your business must be a for-profit entity.
SBA 504 loans are specifically directed at commercial real estate. With that, these types of loans cannot be used for:
- Working capital
- Repayment or debt consolidation
- Speculative real estate investing
The Small Business Administration (SBA) has several different funding options for small business owners and entrepreneurs. The Coley Group can assist you in choosing which one fits your specific needs. A business plan is required with each, and our staff is capable of writing one that meets the strict SBA guidelines. For more details on how we can help, contact us at 817-813-1929 or visit us on the web at Business Plan Writers: SBA Business Plans | Business Plan for Investors (coleybusinessplans.com)
