Business Finance Capital (BFC) is a CDC proudly serving the Greater Los Angeles business community. A Certified Development Company or CDC is a non-profit corporation that promotes economic development within its community through SBA 504 loans. A Certified Development Company is certified and regulated by the Small Business Administration and serves as a bridge between lenders and participating lenders such as banks. When a lender successfully receives a SBA 504 loan, 50% of the loan comes from a participating lender such as a bank and 40% from a CDC – this amount is fully funded by the SBA. SBA 504 loans can only be applied and gained exclusively through a CDC.
What’s a SBA 504 Loan?
A Small Business Administration (SBA) 504 loan is a terrific business loan program that helps small businesses gain the financial resources they need to acquire equipment, commercial real estate, or other commercial assets. The SBA 504 loan program is fabulous for small businesses because the loan program offers incredibly competitive rates for small businesses while requiring small businesses to put down a minimal amount for an acquisition. The SBA 504 loan structure is:
- A participating lender such as a financial institution lends up to 50% of the total project cost.
- A Company Development Company (CDC) offers up to 40% of the project.
- A borrower such as a small business contributes 10% (may be up to 20% depending on the loan scenario) of the total project costs.
|For example, the SBA 504 loan structure for a project that costs $1,000,000 is the following:|
|A participating lender loans $500,000, which is 50% of the total project.|
|A Company Development Company (CDC) loans $400,000, which is 40% of the total project.|
|The borrower contributes $100,000, which is 10% of the total project.|
This competitive or resourceful loan structure gives small businesses plentiful room to gain working capital while keeping ample cash on hand.
What’s a Certified Development Company’s Role in a SBA 504 Loan Program?
A Certified Development Company acts as a middleman for applying for a SBA 504 loan. A small business can only receive a SBA 504 loan through a Certified Development Company. A small business can’t go directly to a financial institution to attain a SBA 504 loan. Key benefits of this procedure are:
- Small business borrowers gain expert advice from a Certified Development Company on a SBA 504 loan terms, rates, and other insights related to this business loan. A Certified Development Company can recommend a specific length of a SBA 504 loan to help a small business with its cash flow. A Certified Development Company can also suggest the borrower on the type of assets the borrower should purchase using the SBA 504 loan. These recommendations are all incredibly beneficial to small businesses that are borrowing money to take their companies to the next level.
- A Certified Development Company partners with a wide selection of credible financial institutions. This large selection of partners increases a small business borrower’s chance of attaining a SBA 504 loan.
Business Finance Capital (BFC) is your Certified Development Company in Greater Los Angeles. We’re proud and excited to partner with reputable financial institutions such as Banc of California, JP Morgan Chase, or GE Capital to offer competitive financing to our borrowers. Our lender partners are exceptionally established, reputable, and trustworthy.
How Can a SBA 504 Loan Be Used Once The Business Loan is Approved?
A SBA 504 business loan must be used for fixed assets (and certain soft costs) including:
- Purchasing existing buildings
- Purchasing land and land improvements such as grading, street improvements, utilities, parking lots and landscaping
- Constructing new facilities or modernizing, renovating or converting existing facilities
- Purchasing long-term machinery
- Refinancing debt in connection with an expansion of the business through new or renovated facilities or equipment
It’s imperative to note that the SBA 504 loan program cannot be used for working capital or inventory, consolidating or repaying debt, or refinancing (except for projects with an expansion component or that meet the temporary refinancing provisions of the Small Business Jobs Act of 2010).
What are the main benefits of applying for a SBA 504 loan for a small business?
Overall, the most useful benefit of a SBA 504 loan program offers is that the loan offers a small business borrower plentiful funding while requiring a small business borrower minimal down payment. Specifically, major benefits of a SBA 504 loan program include:
- 90% financing
- Longer loan amortizations and no balloon payments
- Fixed-rate interest rates
- Minimal down payment and monthly payment which improves a small business’ cash flow
How can a small business become eligible for a SBA 504 loan?
To be eligible for a SBA 504 loan program, a small business must operate for profit and fall within the size standards set by the SBA. Under the SBA 504 Program, a business qualifies if it has a tangible net worth under $15 million with an average net income of $5 million or less after federal income taxes for the preceding two years prior to application.
Which types of small businesses aren’t eligible for a SBA 504 loan?
Small businesses that fall under the following categories are not eligible for SBA 504 loan:
- Real estate investment firms that will hold the SBA 504 loan for investment purposes as opposed to acquiring real estate.
- Firms that involve in speculative activities and generate profits from fluctuations in price rather than through the normal course of trade, such as wildcatting for oil and dealing in commodities futures, when not part of the regular activities of the business.
- Dealers of rare coins and stamps.
- Firms that involve in lending activities, such as banks, finance companies, factors, leasing companies, insurance companies (not agents), and any other firm whose stock in trade is money.
- Pyramid sales plans, where a participant’s primary incentive is based on the sales made by an ever-increasing number of participants. Products include cosmetics, household goods, and other soft goods lend themselves to this type of business.
- Firms involved in illegal activities that are against the law in the jurisdiction where the business is located.
- Gambling activities, including any business whose principal activity is gambling.
- Charitable, religious, or other non-profit or eleemosynary institutions, government-owned corporations, consumer and marketing cooperatives, and churches and organizations promoting religious objectives.
A SBA 504 business loan helps a small business acquire commercial assets the company needs to expand or increase operational efficiency. By working with a reputable and established Certified Development (CDC) such as Business Finance Capital (BFC), you can apply and obtain a SBA 504 loan for your business needs. BFC’s dedicated team of commercial loan experts is delighted to answer any questions you have about SBA 504 loan. Get in touch with one of our commercial loan experts today!