The SBA has a number of funding programs available to small business owners. Without question, the SBA 7a loan program is the one most opt for when they find themselves in need of funding, working capital, or in the market to acquire an existing business. While the 7a program is popular, it’s not the only option the SBA houses under their funding umbrella. There’s also the CDC/504 Loan Program. The CDC/504 Loan Program is an arm of the SBA that focuses primarily on funding business opportunities that promote economic growth, job creation, or job preservation. When it comes to growing the economy and creating new jobs, most businesses need to acquire capital assets (cars, software, machinery), expand, or possibly modernize their operation. If your business is focusing on one of these areas and you’ve been considering a CDC/504 loan, there are a few things you should know.
What’s a CDC?
A Certified Development Company (CDC) is a private entity authorized through the SBA to encourage and support economic development in its community. These organizations work closely with the SBA and select lenders to provide financing through the CDC/504 Loan Program.
How does a 504 differ from 7a?
Unlike a 7a loan that allows funds to be used for a wide range of business activities, the 504 program is far more defined when it comes to usage. Under this program, proceeds can be used to finance new construction or to acquire a real estate asset. Large equipment purchases can also be made with 504 proceeds. One key differentiator comes in the area of working capital. Whereas the 7a option allows borrowers to use funds as working capital to finance the day-to-day activities, the 504 does not as working capital must be covered by the borrower.
What can the proceeds from a 504 loan be used for?
As stated previously, when it comes to the use of 504 loan proceeds, lenders are rigid. Funds secured through this arm of the SBA must be used in the following areas.
Land and Construction:
In some cases, entrepreneurs will look to acquire land and build a structure to house their business. In this case, the 504 loan perfectly aligns with their needs. A restaurant, car wash, boxing gym, any number of ventures that require land, and a structure would be ideal for a funding instrument of this type.
Acquiring a structure:
In other cases, the structure might already exist. If that’s the case, the 504 loans might be the right fit. This is also a great option for business owners looking to relocate their operations. One key point to consider if you’re thinking of making a building purchase through a 504 loan, 49% of the building can be leased out. This could bring in much-needed revenue that could offset or lessen the burden of servicing the loan.
New equipment and machinery:
New equipment, machinery, and other fixed assets can be purchased through proceeds from a 504 loan. If you’re in the dry-cleaning business and need new washers, a 504 loan might be right for you. Advances in technology could mean in order for a mechanic to continue competing, he must outfit his shop with new equipment. When that time comes, a 504 loan will be the perfect route to pursue.
Energy Efficient Projects:
Energy Efficient Projects garner special attention from 504 lenders. Any opportunity to improve and protect the environment is worth a listen and in fact, the SBA encourages small businesses to seek ways their business can preserve the planet. If you own a business that has access to a technology that can protect the environment, expand your operation, and improve your fiscal standing, you should strongly consider this option.
The Business Plan Writers at The Coley Group Help You Get SBA 504 Loans
A 504 loan through the SBA is an amazing opportunity not only for business owners but also, for the communities they represent. If a business is expanding, a job is created and this, in turn, drives economic growth. Integrating advanced technology into the business mix helps entrepreneurs operate more efficiently. All of these areas and so many more come to fruition with the help of a 504 loan. If you’re interested in finding out more about the SBA 504 funding option, feel free to contact us today.
