The SBA 504 commercial loan program was created with the objective of providing small business owners the ability to buy fixed assets using loans that have been guaranteed by the United States Small Business Administration.Â The SBA commercial real estate loan program is secured using a mixture of financing thru a bank and CDC (Certified Development Corporation).Â The CDC refers to a nonprofit organization that is community-based and derives its funding from the federal government.Â Â
Small businesses are offered SBA commercial loan for the purpose of buying buildings or fixed assets and leverage their investment with up to 90% Loan to value.Â The program categorizes fixed assets as tangible property such as equipment, manufacturing plants and real estate.Â The reason for this is because the program will enable these small businesses to expand and modernize thereby igniting growth to the economy.Â Â
Small business loans come in various forms.Â There are those designed for new businesses, businesses that are already established, borrowing for working capital, or small crisis such as funding payroll or paying unexpected expenses.Â Â Â
It is important to note, however, that not all businesses can apply for an SBA commercial real estate loan.Â Entities such as passive investment corporations, non-profit companies, lending companies, commercial real estate development corporations and the like are some business types that cannot avail of the SBA 504 commercial loan.Â The program only applies to small businesses that have an income of below $2.5 million USD and a net worth of $7.5 million and below.Â For business owners, an SBA 504 commercial loan is for Â those who want to own their business property and generate asset and equity in future.Â Â
If the business is less than two years old or if the asset's category is considered for a special purpose, it must be able to put up a minimum of 10% of the acquisition cost.Â CDCs are able to lend as high as 40% with the loan guaranteed by the SBA.Â Â Â
Remember that the government backs up these loans thereby creating limits for several categories.Â If the purpose of the loan is to create employment, the loan amount can reach as high as $1.5 million.Â If it is a small manufacturer, the amount reaches $4 million.Â These amounts, however, are subject to terms and legislation thus, they are not fixed and can be subject to change depending on the goals and objectives set by the legislature.Â Â
Just like any other conventional financing, getting an SBA commercial real estate loan requires a lot of paperwork.Â Credit histories are considered, and any small business owner who have filed for personal bankruptcy or has a felony or misdemeanor record may not get the loan approved.Â And of course, the rates are better if not the same as commercial loans, offering business owners higher leverage with long term and below market interest rates.Â
For more information or to discuss your loan scenario, please visit us at http://www.citycapitalfinance or call us at 310-598-5939.