how to save money and grow your business with an sba 504 loan

SAVE MONEY AND
GROW YOUR
BUSINESS WITH
AN SBA 504 LOAN



Save Money and Grow Your Business with an SBA
504 Loan
SBA's 504 program is designed for the purchase of fixed assets such as buildings or
land, and is a fixed rate, long-term form of financing. The main purpose of this program
is to help further the economic development of a community. The SBA works with
Certified Development Companies (CDCs) and lenders from the private sector to help
finance small businesses.
Funding from the 504 loan program can be used to acquire new facilities, purchase land
or refurbish existing buildings. Businesses can also use the funds to buy long-term
equipment or machinery, make street improvements such as grading, and install
utilities, parking lots, or landscaping.
504 Loan Benefits
The SBA 504 Loan program is a powerful economic development loan program that
offers small businesses another avenue for business financing, while promoting
business growth. The 504 program benefits the economy and local communities as
well; having provided over fifty billion in loans, the program has helped to create more
than two million jobs.
The CDC, backed by SBA's guarantee, will loan up to forty percent of the cost of a

project, and the private sector lender will cover fifty percent, for a ninety percent loan to
value ratio. The 504 Loan program offers both immediate and long-term benefits,
including:
• Ninety percent financing, since most closing and "soft costs" can be financed

• Twenty-year second mortgage at below market interest rates

• Multiple options for title and ownership

• Improved cash flow for small businesses

• Flexibility with tax benefits

• Longer loan amortizations


• No balloon payments

• Fixed interest rates

• Lower payments
Potential Drawbacks
The loan cannot be used to pay off or consolidate existing debts, nor can it be used for
working capital, purchasing inventory or refinancing debt.
To be eligible for a 504 Loan, your business must be a “for profit” organization that falls
within size standards established by the SBA. Your business must have a tangible net
worth not more than fifteen million, and an average net income of five million or less
after federal income taxes for the preceding two years prior to applying for the loan.
Important Facts about the 504 Loan Program
The 504 Loan Program provides small businesses with long-term, fixed-rate financing

used to obtain fixed assets for growth or renovation. 504 loans are made available
through Certified Development Companies (CDCs), SBA's community based partners
for providing 504 Loans.
504 Loans are normally structured with SBA providing forty percent of the total project
costs, a participating lender covering up to fifty percent of the total project costs, and the
borrower contributing ten percent of the project costs. Under certain circumstances, a
borrower may be required to supply up to twenty percent of the total project costs.
Maximum projects costs are in the range of (but not limited to) twelve million.
A CDC is a nonprofit corporation that promotes economic development within its
community through 504 Loans. CDCs are certified and regulated by the SBA, and work
with SBA and participating lenders (typically banks) to provide financing to small
businesses, which in turn, accomplishes the goal of community economic development.

There are over 260 CDCs nationwide each having a defined Area of Operations
covering a specific geographic area. The area of operation for most CDCs is the state
in which they are incorporated. To contact a CDC in your area, first use this link to
locate your local SBA district office.


Loans cannot be made to businesses engaged in nonprofit, passive or speculative
activities. For additional information on eligibility criteria and loan application
requirements, small business and lenders are encouraged to contact a Certified
Development Company in their area.
7 Questions to Ask when Comparing Lenders
A helpful strategy when evaluating business service providers is to check references
thoroughly. Try to obtain at least three references from each lending company you’re
considering. If possible, these should be companies similar to yours in size as well as
industry. Contact each reference and ask questions such as:
1. Did the lending agent take time to answer your questions and learn about your
business?

2. Were you given adequate assistance through the application process?
3. Did you get the right type of equipment lease agreement for your needs?
4. Did the company work with you through any challenges in making payments?
5. Do you feel you can depend on this lending company as a trusted partner?
6. Do you feel that you were always treated with fairness?
7. Would you use this lending company in the future?
10 Mistakes to Avoid When Applying for a Business Loan
1. Not being prepared with a business plan. Even when not applying for a loan, it's
wise to have a business plan to help keep your business running smoothly. But a
good business plan is a basic essential for the loan application process. Lenders
will want to know how you plan to operate your business, and that you are
capable of reaching the financial goals you have projected for the business.
Include all financial data at your disposal to support your plan.
2. Not shopping around before choosing a lender. Investigate the loan programs
offered through credit unions and other sources in addition to your local bank.
Small business owners can find excellent resources through the Small Business
Administration.


3. Not having the required financial documentation. Whether applying for a
business or personal loan, take the time to get your finances in order so you can
present the proper documentation to the lender.
4. Not being aware of your credit rating. Obtain your credit history and scores from
the three main credit reporting agencies so you have an idea of the type of loan
you can qualify for. If your credit report has errors it may be worth the effort to
clear them up before proceeding with your loan application.
5. Not indicating what the loan will be used for. Lenders will want details regarding
how the money will be used. They also want assurance that you know exactly
what your business needs are and how the loan will help meet those needs.
6. Signing the loan agreement without carefully studying the terms. Once you find

out you've been approved, it can be tempting to sign without reading the
agreement. But take the time to go over the details carefully and ask for
clarification of any points you don't understand completely.
7. Not locking in a good rate. When you do find a good rate, don't hesitate to lock it
in before it has a chance to go up. Waiting for interest rates to drop further could
prove costly.
8. Making changes in your business. Lenders look for stability in business
operations, so significant changes in personnel, or in the way you run your
business may be cause for concern.
9. Lack of equity in the project. Seeing that you have personally invested in your
business project will give lenders more confidence in taking on the risk; you will
be more likely to work hard for success when your personal assets are also
involved.
10. No collateral to offer. Few lenders will approve a completely unsecured business
loan.





3 Key Qualities to Look for In a Provider
Take the following factors into consideration when looking for the right commercial
lender a 504 Loan:
• Rate: Be sure that you understand not only what the current rate amount is, but
also what kind of future rate you will be getting so that you can anticipate costs
down the road.
• Reputation: The reputation of the commercial lender is very important. Look for
a lender that has a track record of credibility will work with you in a favorable way
if there comes a time when you have difficulty making payments. Search the
Better Business Bureau records and Google for information about a particular

company and any complaints that may have been filed against that company.
• Loan Amount: Depending on the credit history of the business and the key
players, the amount of the loan that you will be able to get may vary by mortgage
lender. Therefore, you will want to preauthorize the loan prior to looking for
property or equipment to purchase.
Making Your Final Selection
There are hundreds of commercial mortgage lenders across the country. Finding the
right commercial mortgage lender for your business needs is a time consuming process.
It involves doing plenty of research into rates, fees, and the reputation of each lender.
The experts at InsideUp have a proven track record for matching businesses with the
right vendors for their needs. We have pre-screened, top commercial loan vendors who
are willing to compete for your business with highly competitive quotes. We provide this
service at no cost or obligation to you. Hundreds of businesses have successfully used
our service to find quality service providers who offer significant pricing advantages.







Glossary of Key Terms
A/P
Accounts Payable
A/R
Accounts Receivable
ACH
Automated Clearing House
Agency Guaranty
A commercial loan written with a guaranty of a private or municipal agency guarantying

the loan payment to the lending institution, like the Small Business Administration (SBA)
Appraised Value
The value placed on an item, product or business by an appraiser recognized for
expertise in a particular field
Asset
The entire property of a person, association, corporation or estate applicable or subject
to the payment of debts
C Corporation
A separate legal entity once it is formed, so it must file its own taxes and be responsible
for its dealings. It can have unlimited numbers of shareholders, and those shareholders
can be any kind of legal entity. Additionally, since corporations are taxed on their
income and shareholders have to claim dividends as taxable income themselves,
shareholders of a "C" corporation are double taxed on their dividend income.
CFFO
Cash Flow from Operations
CPA
Certified Public Accountant
CRA
Community Reinvestment Act


Cash Flow
The movement of money into and out of your business
Cash Flow Statement
An accounting presentation showing how much of the cash generated by the business
remains after both expenses (including interest) and principal repayment on financing
are paid
Certified Development Company
A non-profit corporation set up to contribute to the economic development of its
community

Collateral
Something of value – securities, evidence of deposit or other property – pledged to
support the repayment of an obligation
Commercial Mortgage
A mortgage loan written for a business purpose with a building used as collateral
Commercial Paper
Unsecured promissory notes of large corporations
Credit
Time allowed for the payment of goods or services sold on trust as well as confidence in
the buyer's ability and intention to fulfill their financial obligations
Creditor
The lender of the funds, to whom someone owes a loan
DDA
Demand Deposit Account
ECOA
Equal Credit Opportunity Act
Equity
An accounting term used to describe the net investment of owners or stockholders in a
business. Under the accounting equation, equity also represents the result of assets
less liabilities.
General Accepted Accounting Principles

General Partnerships
A form of business entity in which two or more co-owners engage in business-for-profit.
For the most part, the partners own the business assets together and are personally
liable for business debts.
IRA
Individual Retirement Account
IRS
Internal Revenue Service

ISO
Independent Servicing Organization
Joint Venture
Is a general partnership typically formed to undertake a particular business transaction
or project rather than one intended to continue indefinitely. Most often, joint ventures are
used in real estate matters where two or more persons undertake to develop a specific
piece of real property.
Liabilities
Debt owed by the company, such as bank loans or accounts payable
Limited Liability Company (LLC)
A distinct type of business that offers an alternative to partnerships and corporations, by
combining the corporate advantages of limited liability with the partnership advantage of
pass-through taxation (earnings are taxed only once)
Limited Partnership
One or more "general" partners run the business while "limited" partners contribute
capital and share in the profits. General partners remain personally liable for partnership
debts and risks while limited partners incur no liability with respect to partnership
obligations beyond their capital.
Line of Credit
A revolving credit where the funds can be re-used after repayment, usually for short
durations


Marketable Securities
Stocks or bonds sold on an open market, like the New York Stock Exchange (NYSE),
for which there is a readily available sale
Maturity
The date on which a loan becomes due
Net Worth
Property owned (assets), minus debts and obligations owed (liabilities), is the owner's

equity (net worth)
Non-Profit
A corporation that cannot issue shares and cannot pay dividends. In addition, under the
Federal Tax Code Section 501 (c)(3), a non-profit corporation is eligible for certain
federal and state tax exemptions and, upon dissolution, must distribute its remaining
assets to another non-profit group.
S Corporation
Much like a "C" corporation in that it is also its own legal entity, protects its shareholders
from legal liability, and requires a certain amount of yearly maintenance. However, an
"S" corporation allows shareholders to claim their share of the corporation's income
directly on their personal tax return, avoiding a double tax situation. However, an "S"
corporation is generally limited in the amount of shareholders.
SCORE (Service Corps of Retired Executives)
10,500-member volunteer association sponsored by the Small Business Administration
(SBA). SCORE matches volunteer business-management counselors with present
prospective small business owners in need of expert advice.
Small Business Administration (SBA)
A governmental agency that aids, counsels, assists, and protects the interests of small
business concerns, and advocates on their behalf within the government
Sole Proprietor
A sole proprietor is not a separate entity itself. A sole proprietor directly owns the
business and is directly responsible for its debts.



Term Loan
A loan written for a specific term, e.g., 60 months, calling for a monthly principal and
interest payments
Time Loan
A loan written for a set time period, usually with all principal and interest due at maturity