SBA Loan Use of Funds
SBA 504 Program
Don Lodge, Senior Business Consultant
Duquesne University/Palumbo/Donahue School of Business Development Center (SBDC)
The United States Small Business Administration (SBA) guarantees business loans through two major programs: 7(a) loans and 504 loans. The 7(a) loan program is most common; funds can be used to buy a business or for working capital. The 504 program, on the other hand, is financing for owner-occupied commercial real estate properties. Properties must be at least 51% occupied by the borrower.
504 loans are long-term, fixed rate loans from $125,000 up to $5,000,000 for major fixed assets. Funds can be used for:
- Purchase or construction of existing buildings or land, new facilities, and long-term machinery and equipment, or
- Improvement or modernization of land, street, utilities, parking lots and landscaping, and existing facilities.
Funds cannot be used for:
- Working capital or inventory
- Consolidating, repaying or refinancing debt, or
- Speculation or investment in rental real estate.
Advantages of SBA 504 loans include only 10% down and repayment over 10 years or 20 years.
Not everyone is eligible for a 504 loan. To qualify, the business must be for-profit, have a tangible net worth of less than $15 million, and have an average net income of less than $5 million for the preceding two years. Other eligibility standards apply including qualified management expertise, a feasible business plan, good character, and ability to repay the loan. Businesses engaged in nonprofit, passive, or speculative activities are not eligible.
504 loans are available through Certified Development Companies (CDCs), SBA's community-based partners who promote economic development within their communities. CDCs are certified and regulated by the SBA. Visit this website for a list of CDCs in Pennsylvania.
https://dced.pa.gov/ida-idc/
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