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Affordable Capital for Expansion; Now with Most Fees Eliminated

You may not realize it, but the Small Business Administrationʼs (SBA) 504 loan program may be the best-kept secret for commercial real estate financing. The 504 loan program exists specifically to help small- to mid-sized business owners acquire commercial property without the financial hassles and high cash outlay requirements often associated with conventional loans.

The 504 program provides small business owners with up to 90% financing at below market fixed interest rates (no ARMs) and long amortization terms (up to 20 years) on projects from $125,000 to $20 million. Interest rates for 504 loans are currently among the lowest in program history. In addition, most up-front fees have been temporarily eliminated which will save you thousands of dollars.

Loan proceeds may be used for the purchase of fixed assets involving owner occupied commercial real estate or long term machinery and/or equipment. Specifically, this opportunity includes the purchase, construction, expansion or renovation of owner-occupied commercial real estate; and/or the acquisition of industrial equipment or other fixed assets that have a useful life span of at least 10 years.

The 504 program does not provide financing for working capital, inventory and such. However, its sister program, the 7(a) loan program, does and can be packaged with a 504 loan. More information on the 7(a) program can be found at www.sba.gov.

Mechanics and Benefits of a 504 Loan The 504 loan structure uses a distributed credit structure and works like this: a commercial bank or lending partner provides 50% of the loan and takes a first mortgage. A certified development company provides 40% of the financing and takes a second mortgage. In most cases, the borrower puts down just 10% and makes one monthly payment to a central servicing agent. In todayʼs tightened credit market, the 504 loan program is a very strong financing alternative because the commercial bank or lending partnerʼs risk is cut in half, making it a willing lending participant. Also, the low downpayment (usually 10%) is significantly less equity than lenders want under a conventional loan scenario. And because the required equity is so low, thereʻs much less risk involved for the small business owners.

The 504 program lets companies continue to use their hard-earned capital, while gaining the capital-generating benefits of owning commercial property. Project costs are financed in their entirety with the 504 loan, unlike most conventional bank loans, which only finance a percentage of the purchase price/appraised value. Additionally, if borrowers decide to sell their property, 504 loans are assumable.

How to Obtain a 504 Loan

The 504 program is administered by certified development companies, several of which are members of SBRN.

The first step toward obtaining a 504 loan is to contact your local bank to determine if it works with certified development companies to offer the 504 program. If not, feel free to contact one ofthe SBRN CDCs directly.

To be eligible, the borrower must be a U.S. citizen and the business must be for profit and located in Florida; tangible net worth canʼt exceed $8.5 million and two year average after tax annual profits canʼt exceed $3 million; and the project cannot be entirely income producing (i.e., relying solely on tenant income).

The 504 loan process itself – unlike in the past – is very straight-forward, thanks to streamlining at the SBA and to the certified development companies. Many 504 loans can be done in 60 days, which is just as fast as a conventional loan. Pre-approval can occur within 24 to48 hours, with commitments in days, not weeks.


Any small- to mid-sized business owner would be hard-pressed to find a deal that beats a 504 loan, especially right now. Borrowers can enjoy better cash flow as well as the greatest cash-on-cash returns that exist in the commerial mortgage industry.

Kristen Tackett is a loan officer at Florida First Capital in Jacksonville. She can be reached at (904) 861-2270 or kristen@ffcfc.com.