Does Your Real Estate Business Qualify for an SBA 504 Loan?


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The SBA’s 504 loan program provides small businesses with long-term, fixed-rate financing to acquire major fixed assets for expansion or modernization. The idea behind the loan is a great one. A Certified Development Company works with the SBA and private sector lenders to provide financing to small businesses, which helps develop the community’s economy.

Use of 504 Loans

504 loans must be used for fixed asset projects. These include the purchase of land and buildings, purchase of improvements, the construction of new facilities or renovating facilities, and the purchase of long-term machinery and equipment. For the average real estate business, this can help with expansion issues, acquiring office space, etc.

However, the one thing it can be used for will eliminate the dreams of most real estate businesses. The 504 Program Loans cannot be made to businesses engaged in speculation or investment in rental real estate. There is hope. If your real estate investment business does not do any rental real estate, you may still qualify.

Things to Keep in Mind

If you have the qualifying criteria, keep these thoughts in mind before turning in your application for a loan.

To be eligible for a 504 loan, your business must be for profit and fall within the SBA’s size standards.

The total maximum amount of the SBA loan is $1.5 million, if you are meeting the job creation criteria of creating or retaining one job for every $65,000 provided by the SBA.

Also, the program has had some growing pains since its initial kickoff.

1. It took an extra 6 months for the program’s rules to come out and applications to be accepted.

2. Changing balloon payment requirements initially knocked a lot of needed contenders out of the race for the loan.

3. The entire loan to be refinanced had to only be used for hard assets, even if it was 95% used hard assets and 5% was used for operating capital.

4. The SBA 504 cannot be used to refinance another government program loan.

5. The SBA and CDC still have to improve their roles in the approval and managing process of the SBA loan program.

Financing real estate business needs can be a tricky process. For more information on financing as well as other ideas for your real estate business, visit us at homevestors.com. We offer fabulous real estate investment and real estate franchise opportunities.

 

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