The Small Business Administration (SBA) 504 Loan program is a cornerstone in bolstering the American small business landscape, especially in Nevada. This program offers long-term, fixed-rate financing for significant fixed assets, such as commercial real estate or equipment with a useful life of 10 years or more.
The Purpose and Benefits of SBA 504 Loans
The SBA 504 Loan program’s primary objective is to stimulate economic development and job creation. By offering small businesses affordable financing, it paves the way for growth, expansion, and modernization.
Key Benefits for Small Businesses
- Competitive Interest Rates: The SBA 504 Loan boasts below-market, fixed interest rates.
- Extended Terms: These loans offer amortization periods of up to 20 or 25 years.
- Asset Financing: Businesses can finance significant fixed assets without hefty down payments.
Real-World Success Stories
Helicopter Parts International
Leveraging the SBA 504 loan through NSDC, they financed a sprawling 76,000 square feet of new warehouse space in Northern Nevada. Discover their journey.
All Aboard Cafe & Inn II
With NSDC’s guidance, this B&B is now aiming for year-round operation. Dive deeper into their story.
Sala Dentistry
An SBA loan via NSDC and First Independent Bank enabled Sala Dentistry to triple its operational size, underscoring the SBA 504 loan’s transformative potential. Read their success story.
Inspired by these success stories?
Reach out to NSDC today to explore how your business can benefit from an SBA 504 loan.
Eligibility Criteria for SBA 504 Loans
Operate with a for-profit model.
The SBA 504 loan program is designed specifically for businesses that operate to generate profits. Non-profit organizations or charitable entities are not eligible for this type of loan. Your business should have a primary goal of making a profit from its operations.
Showcase a tangible net worth below $15 million.
Tangible net worth refers to the total value of a company’s physical assets minus its liabilities. For a business to qualify for an SBA 504 loan, its tangible net worth should be less than $15 million. This criterion ensures that the loan program supports small to medium-sized businesses rather than large corporations.
Report an average net income of $5 million or less post federal income taxes over the last two years.
The business’s net income, after deducting federal income taxes, should average $5 million or less for the past two fiscal years. This requirement ensures that the SBA 504 loan program caters to businesses that are not excessively profitable, thereby supporting enterprises that genuinely need financial assistance.
Intend to utilize the funds for approved purposes.
The funds acquired from the SBA 504 loan should be used for purposes approved by the Small Business Administration. This can include purchasing commercial real estate, machinery, equipment, or for construction and renovation projects. Misuse or diversion of funds for unsanctioned purposes can lead to severe penalties and jeopardize the loan agreement.
How SBA 504 Loans Work:
A Step-by-Step Guide
Initial Consultation
The journey begins with an in-depth consultation to assess the suitability of the SBA 504 loan for your business. Schedule a personalized meeting with an NSDC loan specialist. This session aims to provide clarity on how the loan can benefit your Nevada-based enterprise. The specialist will evaluate your business needs, discuss potential advantages, and address any concerns you might have.
Documentation
Proper documentation is crucial to assess the viability and credibility of your business. Gather essential documents such as financial statements, detailed business plans, and future financial projections. To ensure you don’t miss out on any critical paperwork, download our comprehensive application checklist. This list will guide you through all the necessary documents required for a successful application.
Application Submission
This step involves formally applying for the SBA 504 loan. You’re not alone in this! Our dedicated team will guide and assist you throughout the entire SBA submission process. We’ll ensure that all documents are in order, answer any queries, and help streamline the application process for quicker results.
Approval & Funding
Once the application is reviewed, the next step is approval and subsequent funding. After the loan is approved, funds are disbursed based on the specific needs of your project. While the standard approval time for SBA 504 Loans is 2-3 weeks, NSDC offers a unique advantage. We provide a pre-qualification status within just three days after receiving limited financial data, giving you a head start in your planning.
Loan Structure
The SBA 504 loan is structured to distribute the financial burden among different stakeholders. The financial structure typically involves three key players:
- A commercial lender, covering 50% of the total project cost.
- The CDC (Certified Development Company), on behalf of SBA, which accounts for 40%.
- The borrower (that’s you!), contributing the remaining 10%. This structure ensures that the borrower doesn’t bear the brunt of the entire cost, making the loan more affordable.
Repayment
Like all loans, the SBA 504 loan needs to be repaid over time. Repayments are made in monthly installments. The terms of repayment are flexible, ranging from 10 to 25 years. This extended period ensures that the monthly amounts are manageable and don’t strain your business finances.
Interest Rates
SBA 504 Loans Interest rates remain unchanged throughout the loan’s tenure. These rates frequently undercut market averages, making them an attractive proposition for small businesses. You can view our historical rate table to see the market averages.
The Difference Between SBA 504 and Other SBA Loans
The 504 Loan zeroes in on fixed assets and economic development. In contrast, the SBA 7(a) Loan program, more versatile in nature, primarily caters to working capital needs.
Common Uses of SBA 504 Loan Funds
- Land or building purchases.
- New facility construction.
- Machinery and equipment acquisition with useful life of 10 years or more.
- Business expansion-related debt refinancing.
Frequently Asked
Questions
What's the maximum loan amount?
There’s no cap on the project size. However, the SBA restricts its contribution to $5 million but it can be increased to $5.5 million with green energy or manufacturing project.
How long is the approval process?
Generally, it’s between 30 to 60 days. We offer a swift pre-qualification within about three days after receiving limited financial data.
Can I refinance an existing loan?
Absolutely, under specific conditions. It’s advisable to consult one of our loan experts for detailed insights.
What about the fees?
There are charges, including a 1.5% CDC fee, .25% funding fee, 0.40% underwriter fee on loan’s SBA portion, plus an SBA-designated attorney’s fee for reviewing the loan package. Notably, all SBA fees can be financed.
Why Do Business Owners and Banks Choose NSDC?
With Our SBA Business Loan Options Everybody Wins!
Business owners keep more working capital in the business due to the favorable loan terms, down payment, and interest rate. Sellers get funds faster because of SBA’s faster approval time. Brokers earn commissions quickly and close loans that might not have qualified for conventional financing. Banks get a 50% LTV first lien on the building, typically resulting in a lower interest rate to the borrower. Neighborhoods benefit from increased economic development and additional jobs. Taxpayers are not affected as no tax dollars are used to fund the 504 Loan Program.
Easy Prequalification and Fast Approvals
We can prequalify applicants, saving everyone time in determining which properties might be most appropriate. Our staff will work with the borrower and banker from start to finish enabling most loans to close within 60 days with a straight purchase.
Low down payment (usually 10%) and Low, Fixed Interest Rates
Experienced staff and Excellent customer service
Longer Term of Repayment Means Lower Payments
Ownership Equity in Real Property
Conclusion
The SBA 504 Loan program is a beacon for small businesses, facilitating their growth and expansion efforts. With its competitive interest rates, extended terms, and substantial financing, it addresses the many challenges small businesses face when seeking funds.
Have more questions or need personalized guidance? Contact NSDC today for expert advice and insights.
