SBA 504 Loan Program

Long-term Fixed-rate Financing

The U.S. Small Business Administration (SBA), created in 1953, was designed by the federal government to aid, counsel, assist and protect the interests of small business concerns, to preserve free competitive enterprise and to maintain and strengthen the economy of our nation.

The SBA offers a vast array of programs and services to entrepreneurs. Charles Summers, New England Regional Administrator of the SBA, answered some questions about SBA’s 504 Loan Program, one of several programs, available to Maine’s entrepreneurs.

Q: What is the SBA 504 Loan Program?

A: Summers: The SBA 504 Loan Program is designed to work in conjunction with local banks to provide 90% long-term, fixed-rate financing to small and medium sized businesses.

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Typically, a 504 loan project consists of a loan from a local bank, secured by a first security position. This loan covers up to 50% of the project cost. A second loan from a Certified Development Company (backed by a 100 percent SBA-guaranteed debenture) covers up to 40% of the project cost. The equity contribution of at least 10% from the small business is the last piece of this project.

Q: What advantages does the SBA 504 Loan Program offer my business?

A: Summers: This program enables small businesses to acquire long-term subordinated debt at below market fixed rates. In addition to the minimal equity injection, the loan fees and the legal fees can be included in the loan amount and financed over a long term. This allows the small business to save on out of pocket costs and keep cash in the business for working capital.

Q: What can the SBA 504 Loan Program be used for?

A: Summers: SBA 504 loans can be used for acquisition and/or renovation of capital assets including land, buildings, and equipment.

Typical uses of SBA’s 504 program are new construction, expansion of a manufacturing plant, purchase of land and buildings.

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Q: Is my business eligible for an SBA 504 Loan?

A: Summers: Almost all Maine small businesses are eligible. To be eligible, the business must be operated for profit and fall within size standards set by the SBA. The 504 loan program is especially valuable to small manufacturers since the maximum 504 loan to this category of business is $4.0 million which will support a total project cost of $10.0 million.

Q: What are the interest rates, terms, and fees for an SBA 504 loan?

A: Summers: Interest rates on 504 loans are pegged to an increment above the current market rate for five-year and ten-year U. S. Treasury issues. Maturities of 10 and 20 years are available. Fees total approximately three (3) percent of the debenture and may be financed with the loan, along with legal and other fees.

Q: What collateral is required?

A: Summers: Generally, the project assets being financed are used as collateral. Personal guaranties of the principal owners are also required.

Q: How much can my business borrow under the SBA 504 Loan Program?

A: Summers: SBA’s participation generally represents 40% of the total project cost. Typically, a debenture of $1.5 million supports a project cost of $3.75 million, a debenture of $2.0 million supports a total project cost of $5,000,000 and a $4.0 million debenture supports a total project cost of $10.0 million.

For information on SBA’s programs and services, contact the Maine District SBA Office at 207-622-8274 or visit www.sba.gov/me.


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