Quick Intro to SBA 504 Loans

Virginia Community Capital recently hosted a recorded webinar, Supporting Small Businesses & Promoting Job Creation with SBA 504 Loans, featuring Zachary Petry and Chris Topping of 504 Capital. The presentation focused on what the SBA 504 loan program is and how it can be used. The SBA 504 loan program was created in 1958 to help business owners acquire land, property, or equipment. More specifically, the purpose of this program is to provide a government-backed loan to small businesses for the use of:

  • Owner-occupied commercial real estate acquisitions (“CREs”), new construction, improvements, or refinancing; and
  • Equipment purchases or refinancing (this mainly applies to heavy equipment with a life of at least 10 years).

Why do small business owners like SBA 504 loans?

  • Business owners have to put as little as 10% down on total project costs (including closing costs);
  • SBA 504 loan rates are usually 1-2% lower than market rates (they were as low as 2.81% as of July 2021);
  • SBA 504 loan rates can be fixed for 25 years on CRE;
  • Thanks to the CARES Act (pending fund availability), through September 30, 2021, most fees are waived, and 3 months of principal and interest will be made on behalf of the borrower (up to $9,000 per month, per loan).

Why do banks like SBA 504 loans?

  • 50% loan to value (“LTV”) on owner-occupied CRE allows banks to lend in an industry or to a borrower that they may not otherwise be able to assist;
  • Low SBA 504 loan rates help banks compete;
  • The bank does not have to negotiate with the SBA in a workout scenario, as they would with an SBA 7(A) loan.

Thank you to Virginia Community Capital and 504 Capital for an insightful presentation! And if you would like to watch the entire presentation, click here.

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