SBA 504 Loans for Beginners

For businesses that are seeking assistance in their growth potential, SBA 504 loans offer the flexibility and convenience of traditional loans and the support and resources of the Small Business Administration, or SBA. The SBA is a government organization that specializes in offering assistance to small sized businesses when they start up or look into expansion. It provides various programs to entrepreneurs such as financing and other types of advice. A 504 loan product is a helpful tool for small businesses due to its low, long-term fixed interest rates, lowered fees and less stringent qualification requirements.                                                                                                                               

Lower, Long-Term Interest Rates

Because of the fact that SBA 504 loans are originated through a government organization, business owners can get a much lower, long-term fixed interest rate compared to a loan solely from the private sector. This type of loan has specific requirements when it comes to what the funds may be used for. Typically, a business may use this kind of loan for either real estate financing or equipment financing. Depending on the nature of the loan, money used for property may have a 20-year fixed rate term, and money for equipment could have a 10-year fixed rate term.

Reduced Fees and Down Payment Requirements

For business owners, SBA 504 loans also offer the benefit of having a reduced amount of fees and a lower down payment requirement. Traditional loans from a private bank may require an entrepreneur to put down at least 20 percent of the final sum to be borrowed. A 504 loan only requires 10 percent as the down payment, so that a business can continue to use its cash to fund new opportunities. The SBA makes closing the loan a little more convenient and allows borrowers to bundle the closing costs back into the final amount of money being financed.

Easier Approval Process

To get approved for a loan, typically a business must demonstrate strong profits, history and a strong portfolio of documentation that shows a successful track record. For SAB 504 loans, the program consciously seeks businesses that wouldn’t traditionally be represented due to location, ownership or other hardships. Local community organizations can work with business owners and help guide them through the easier approval process. For the most part, there is no collateral required on these types of loans. Companies that may not have a large stock of assets can get included in the way to better their organizations.

SBA 504 loans offer smaller companies many different benefits when more funding is needed for property or equipment upgrades. A business can get a lower interest rate, put down less money and have less of a hassle when it’s time to qualify for the loan.