TPRDC Small Business Administraion (SBA) 504 Loan

The U.S. Small Business Administration (SBA) created the 504 loan program in 1980 to provide and encourage financing for small and medium-sized businesses while minimizing the upfront cash injection requirements often associated with conventional loans.

An SBA 504 loan provides long-term, below-market, fixed-rate financing to small businesses for construction and renovation of facilities or to acquire real estate, machinery, or equipment. 504 loans are usually financed 50% by a commercial lending institution such as a bank, 40% by the CDC, and a minimum 10% injection by the business itself. The borrower’s injection is subject to increase 5% if it is a new business (2 years or less) and another 5% if it is a special/single-use facility.

In exchange for this below-market, fixed-rate financing, the SBA expects the small business to create or retain jobs or to meet certain public policy goals.

The 504 program is a mutually beneficial program. The business receives a below market, fixed-rate and low down payment and the bank gets a first lien on all the assets with only a 50% loan to value.