It takes money to make money, and investing in your small business is a sure way to make profits and make more profit. There’s no growth without investment. The problem comes with managing business costs and investing while staying afloat, especially if your enterprise is small and is facing financial difficulties. That’s where a Small Business Administration (SBA) loan comes in handy.

A loan can help you rebuild your business, expand, buy the necessary equipment, replenish your inventory, or improve your cash flow to maintain and retain your employees. But, getting a loan can be tricky, especially if you’re new to the process or prone to making mistakes that might make lenders unwilling to give you a loan.  Even after getting the SBA loan, you might still end up using the loan for personal needs, which is against the “laws” of business loans.

Before we discuss the three mistakes to avoid when applying for an SBA 504 loan, as described in this article on the three mistakes to avoid when applying for a Small Business Administration (SBA) loan, let’s look at what a SBA 504 loan is first.

What Is a Small Business Administration (SBA) CDC/504 Loan?

The U.S Small Business Administration (SBA) assists small businesses to get the funding they need by setting rules and guidelines for loans and reducing lender risk. The SBA makes it easier for qualifying small businesses to get loans from lenders while protecting the lenders against non-compliant or fraudulent loan beneficiaries.

According to the sba.gov website, the SBA CDC/504 Loan Program “provides long-term, fixed rate financing up to $5 million for major fixed assets that promote business growth and job creation.” The loads are available through Certified Development Companies (CDCs) which are certified and regulated by the SBA.

SBA 504 Loan Eligibility Requirements:

  • Operate as a for-profit company in the U.S. or U.S. territory.
  • Have a tangible net worth of less than $15 million.
  • Have an average net income of less than $5 million after federal income taxes for the two years preceding the application.

How to apply for an SBA-backed 504 loan:

SBA-backed and guaranteed loans, including the 504, are advantageous over other regular, non-guaranteed business loans in terms of better terms, continued counseling and support, lower down payments, flexible overhead requirements, and non-collateral requirements for some loans.

Now let’s look at the 3 common mistakes that people make when applying for an SBA-backed loan.

1. Not Having Enough Down Payment in the Bank

What Are the Three Mistakes to Avoid When Applying for an SBA Loan? | BFC Funding

To qualify for and get any type of SBA loan, you must have a down payment in your bank, usually 0f 10% to 30% of the loan you want to acquire as a form of evidence besides your credit score, to alleviate lenders’ risk. The down payment varies by loan type and your qualifications as the borrower; however, in most cases, an SBA 504 CDC Loan requires a down payment of 10%. Some SBA loans like CAPlines and Disaster Loans don’t require down payments whatsoever.

It’s worth noting that the SBA doesn’t l