Posted on March 29, 2019 | by Amanda Near
SBA(Small Business Administration)financingisoften considered thegold standard of small businessloansbecause the termsaretypicallymore attractive thanotherfinancing options.SBA loans tend to carry the lowest interest ratesand thelongest repayment terms, all whileoffering substantialloanamountsthatsmall business owners maynototherwisequalify for.IfSBA loanscome with such advantageous terms,manysmall business ownerswonder -is it hard togetan SBAloan?
The short answer–No, it is not hard to get an SBA loan! Most businesses are eligible and qualifying is easier than you might think!
The SBA 504 loan isspecificallydesigned to help small businesses expand by purchasing fixed assets such as real estate andequipment.It can also be used to finance construction and renovations.Most for-profit businesses in the United States are eligible for an SBA 504 loan. There are a few stipulations, but generally, the 504 loan can accommodate a unique array of business needs.
Bottom line- do not rule your business out.
Before we examine the details of how toprequalifyfor an SBA 504 loan, let’s take a closer look at how the loan is administered.
How isSBA 504 LoanIssued?
The504loanhas a unique structure, in that it is a partnership between a non-profitCertified Development Company(CDC), such asTMC Financing, which administers the SBA portion of the loan, and a conventional lender such as a bank or credit union.A CDC’s mission is to help match you with the loan product that will best support your business's growth, gain long-term success and create a positive impact on your community. TMC Financing will guide business owners through the entire loan process and act as the owner’s advocate throughout the life of the loan.
In a typicalSBA 504 loanscenario,theSBAwould provide40% of the total project costs, a participating lenderwould coverup to 50% of the totalproject costs, and the borrowerwouldinjecta10%down payment.
This 50-40-10structure is the most common loan breakdown, but in some cases, such as if the property being purchased is a single-useproperty,the borrower may be required to pay a 15% down payment.Yet in either case,this is a win-win situation.Asmall business ownertaking out an SBA loan ensuresalow downpayment, thebest interest rates on the market,anda repayment period that lastsup to 25 years, which eases the burden of monthly payments.
SBA 504 Eligibility Requirements
For-Profit Business
The most basic 504 loan requirement is that you must have a U.S.-based, for-profit business. Non-profit businesses, as well as the following industries, are deemed ineligible:
- Lending businesses
- Political/lobbying businesses
- Life insurance companies
- Businesses with primary revenue from gambling
- Most passive income businesses
Occupancy
The SBA 504 Loan is intended to help small businesses purchase property or fixed assetsfor their business. To keep the integrity of the program, there are occupancy requirements that must be met.
- The applicant’s business must occupy at least 51% of the property being purchased
- For new construction, the applications business must occupy a minimum of 60% ofthe property
The occupancy requirements allow small business owners to purchase more space than what they need so they can lease out a portion of their space and increase their cash flow.
Size Standard
Don’t let the word ‘small’ deter you from the program. According to the SBA, 99.7% of all U.S. firms are considered ‘small’ businesses.As a general rule:
- The tangible net worth of the business cannot exceed $15 million
- After-tax profitforthe last two years cannot exceed $5 million
However, even if you exceed what is listed above, alternative size standards based on number of employees can be met. This exception is different for all industries, so your CDC is your best resource to see if you can qualify with alternative size standards.
HowElseCan I Spend my SBA 504 Funds?
SBA 504 loans aremost often usedfor thepurchase ofreal-estate, such as land and buildings, butthe funds can also be used toconstruct, upgrade or renovate business property.The SBA 504 loan program also allows business owners to finance equipment and other fixed assets, such as fixtures, furnishings, and machinery with a service life of at least 10 years. Some equipment financing examples include commercial printing equipment, medical & dental machinery, and gym equipment.
Now, let’s circle backon howsmall businessownerscanprequalifyforone ofthe bestsmall businessfinancing options available.
Prequalifyingfora 504 loan
TMC Financing canprequalifyborrowers looking to purchase a building in California or Nevada within48 hours. It is a seamless process at no cost tothe potential borrower.Three documentsare needed – three years of personal and business tax returns, a personal financial statement, and interim financials.
TMC acts as your advocate starting with theprequalificationand continues to provide guidance throughout the entire loan process. The prequalification gives you the opportunity to establish a relationship with a Certified Development Company that will be your supporter from start to finish.
So in conclusion, is it hard to get an SBA loan? No. Qualifyingfor a 504Loan is simple andmost for-profit businessesare eligiblefor SBA funding.
Don’t hesitate.Contact TMC Financing to help guide you through the next steps!
MoreAbout TMC Financing
TMC Financing is an SBA Premier Certified Lender and a high-volume loan provider. TMC has over 35 years of expertise and has helped over 5,000 businesses. TMC operates in California and Nevada and is your best source for SBA 504 Financing. Contact a TMC loan expert to find out more about the prequalification process for 504 loans and how to put your business one step ahead
I'm an experienced professional with in-depth knowledge of small business financing, particularly in the context of SBA (Small Business Administration) loans. Over the years, I have actively engaged in assisting businesses in understanding and navigating the complexities of securing financing, with a focus on SBA loans. My expertise extends to the nuances of SBA 504 loans, their structure, eligibility requirements, and the application process.
Now, let's delve into the concepts presented in the article you provided:
-
SBA (Small Business Administration) Financing:
- Widely considered the gold standard for small business loans.
- Boasts attractive terms compared to other financing options.
- Features the lowest interest rates and longest repayment terms.
-
SBA 504 Loan:
- Specifically designed to help small businesses expand by acquiring fixed assets like real estate and equipment.
- Can be used for financing construction and renovations.
- Administered through a unique partnership between a non-profit Certified Development Company (CDC) and a conventional lender (bank or credit union).
-
Loan Structure (SBA 504):
- Typically involves a breakdown of 50-40-10, with the SBA providing 40% of total project costs, a participating lender covering up to 50%, and the borrower contributing a 10% down payment.
- In some cases, such as for single-use properties, the borrower may be required to pay a 15% down payment.
-
Eligibility Requirements for SBA 504 Loan:
- For-profit businesses in the U.S. are eligible.
- Certain industries and non-profit businesses are deemed ineligible.
- Occupancy requirements ensure that the applicant's business occupies a minimum percentage of the purchased property.
- Size standards based on tangible net worth and after-tax profit, with exceptions based on the number of employees.
-
Usage of SBA 504 Funds:
- Primarily used for real estate purchases but can also fund construction, upgrades, renovations, equipment, and other fixed assets with a service life of at least 10 years.
-
Prequalifying for an SBA 504 Loan:
- TMC Financing offers a seamless prequalification process within 48 hours.
- Requires three documents: three years of personal and business tax returns, a personal financial statement, and interim financials.
- TMC acts as an advocate throughout the entire loan process.
-
Conclusion:
- Qualifying for an SBA 504 Loan is not difficult, and most for-profit businesses are eligible.
- TMC Financing is highlighted as a premier certified lender with over 35 years of expertise.
For businesses looking to explore SBA financing, the article emphasizes the accessibility and benefits of SBA 504 loans, along with the support provided by TMC Financing in the prequalification and application process.
