There are many benefits for small businesses to apply for an (SBA) 504 loan such as lower down payment deposits on the loan, higher credit limits, competitive interest rates and many others that a small business otherwise would not be able to get through a traditional loan process. This is made possible because the SBA guarantees up to 85% of the loan reducing the risk that private banks take on when they offer loans to businesses taking advantage of the 504 program. In addition to guaranteeing up to 85% of the U.S. Small Business Administration (SBA) 504 loans for lenders, the SBA is taking further steps to reduce the financial risks for lenders. One vital initiative that SBA is taking is requiring the borrower, operating company, and applicable guarantors to provide an annual review to highlight the borrower, operating company, and applicable guarantors’ financial health each year.
The annual review reveals if a borrower is facing financial hardship which helps the lender determine if adjustments to the loan needs to be made. For example, if a borrower defaults on a loan or an obligatory payment such as property tax or commercial maintenance fee, the lender can choose to penalize the borrower by increasing the borrower’s interest rate to over 5%.
The SBA requires borrowers, operating companies, and applicable guarantors to do one or more of the following: