3 Things You Need To Know About SBA 504 Loans
If you’re a small business owner looking for strong financing options, you may have thought about applying for SBA loans like the SBA 504 loan. SBA, or Small Business Administration, loans are well known for providing good terms to borrowers, since the loans are backed by the SBA and therefore reduce risk for the lenders. While they can sometimes be difficult to secure due to stringent application requirements, loans like the 504 help businesses finance equipment, real estate and other types of fixed assets, often in the commercial real estate space. In spite of the application process, there are several advantages that could make the effort well worth it. To learn more about SBA 504 loans and whether they could help your business, read on.
1. They Offer Long Terms and Fixed Rates
One of the benefits of getting a 504 loan is that you can often get a fixed interest rate for a long term period. Terms can range all the way up to 25 years, and interests rates often hover around 5% to 6%. This is helpful especially if you have to pay off a large loan, and some loans can go well into the millions. For instance, the typical 504 loan may go up to $5 million.
2. They Consist of Three Parts
When you get a 504 loan, you’re actually getting an amount made up of three different parts. About half of the loan is usually extended by a bank or similar lender. Another 40% comes from a certified development company, or CDC, that’s been approved by the SBA to work as a nonprofit supporting economic growth in your area. Finally, the last 10% or so is usually supplied by the borrower as a down payment. Depending on the loan, more than 10% may be required.
3. There May Be Additional Fees
While the Small Business Administration restricts the amount of fees a CDC can place on their part of the loan, banks can still determine their own fees. This means that the initial rates you see might not include all associated fees. Be sure to read the fine print before signing agreements.
If you’re looking for loans that can help you purchase fixed assets with good terms and low risk to your lenders, keep SBA loans like the 504 loan on your short list. While applying can be very competitive, the payoff is likely to be more than worth it. Keep these key facts in mind and you can choose the right loan type for your company.