The objective of the SBA 504 loan program is to achieve community economic development through job creation and/or retention, or other economic development impacts by providing long-term ﬁxed asset ﬁnancing to small business concerns.
The SBA 504 loan may finance up to 40% of an eligible project, not to exceed $5,000,000 ($5,500,000 for manufacturing firms). The small business concern is required to inject at least 10% of the project (an additional 5% will be required for a business of less than two years in operation, or an additional 5% if the asset is of a limited or special purpose). Then the private third party lender provides the remaining amount, usually 50%.
Eligible small businesses include those with fewer than 500 employees, or who have an aggregate business net worth of less than $15 million dollars, and/ or an aggregate net proﬁt of less than $5 million dollars. They must be for proﬁt companies with a sound business purpose, and demonstrate sufficient economic impact through the project.
The interest rate is a fixed rate set by the sale of a Debenture (or type of commercial bond), which funds the SBA 504 loan, and is guaranteed 100% by the SBA. The interest rate is generally set at a fixed price slightly above the 5 and 10 year Treasury bill rates, and will remain fixed for the term of the loan. Terms are 10 years for Equipment loans, and 20 years for Real Estate loans.
An eligible project can include: plant acquisition, new construction, renovations or expansions, acquisition of machinery, equipment and fixtures, land and site improvements, and certain eligible soft costs associated with the above.