What's To Know About a SBA 504

The Small Business Administration 504 program or SBA 504 is a program created with the purpose of creating jobs. SBA 504 is a loan program that can be used by most people and businesses but special considerations are given for women and minorities. SBA loans are perfect for businesses looking to expand, develop and construct businesses that will provide jobs.

Griffin Capital provides SBA loans of $400,000 or more in all 50 states and the District of Columbia. SBA loans are only processed by companies that have been certified to do so. These Certified Development Corporations, or CDCs, create a guaranteed subordinated debenture which becomes a second mortgage. This debenture is used to lower the overall exposure of the first trust lender; if the borrower defaults on their loan the government will loose their money before the first trust lender.

However, consumers should know that SBA loans come with guarantee fees and other types of loan fees. The debenture rate is generally a fixed rate for the entire term of the loan. Griffin Capital then places a first trust loan in front of the SBA debenture to maximize the loan to value; often times a borrower can receive a loan for as much as 90% of the total project cost. The terms of the SBA 504 loans are generally 20 years, but the non SBA portion of the loan can be longer so that the weighted average loan term will be closer to 25 years.

Funds from a SBA 504 loan can only be used for purchasing land and improvements, grading, utilities, landscaping, parking lots, constructing new facilities, modernizing properties, purchasing long-term machinery and equipment and other fixed asset projects. There are also restrictions to the loans. For example, SBA loans cannot be used to pay off other debts, refinancing, buying inventory, capital investments or consolidations.

Griffin Capital interest rates on SBA loans are very comparable to traditional commercial mortgage rates. The SBA charges a guarantee fee of 3% of the total loan, which can be financed into the loan. Usually the assets that are being financed are used as collateral along with a personal guarantee from the main owners. SBA 504 loans are great for businesses looking to expand or buy real estate. SBA loans are restricted to businesses that are willing to follow their guidelines and also businesses that have gross revenues of not more than $10.5 million a year.