SBA 504 Program FAQs

What is the SBA 504 Loan Program?  The SBA 504 Loan Program is designed to provide long-term, below market fixed-rate financing for expanding small businesses.

What are Certified Development Companies?  Certified Development Companies are local public/private partnerships organized as non-profit community based corporations that provide 504 financing to local small companies. They are "Certified" by the Small Business Administration to offer 504 loans to eligible small businesses.

They market, package, process, close and service 504 loans as well as offer other economic development programs in their areas of operation. GSBDC can fund projects in Upstate New York.

Is there a bank involved?  In most cases the first mortgage/first lien lender is a bank. The typical structure of a 504 loan is as follows:

Source of Funds Project Financing %
First Mortgage/First Lien Lender 50%
SBA/Certified Development Company 40%
Small Business Concern (SBC) 10%*

*the SBC's contribution will increase to 15% if the project involves a new business and/or special purpose property; 20% if it involved both a new business and special purpose property.

What can my business finance with a 504 loan?

  • Purchase of land
  • Purchase or construction of an owner-occupied building
  • Modernization, renovation, restoration of a building
  • Acquisition of machinery and equipment with at least a useful life of ten years
  • Soft costs associated with the project (appraisals, environmental studies, construction period interest, closing costs, etc.)

Is refinancing allowed?  A limited amount of debt refinancing is permitted if there is a business expansion.  The debt refinanced must not exceed 50% of the cost of the expansion and must meet other refinance criteria. 

Is there a minimum project size?  504 Projects typically range in size from $200,000 to $13,750,000 with the 504 loans ranging from a minimum of $25,000 to a maximum of $5,000,000; or $5,500,000 per project if the borrower is a manufacturer in NAICs sectors 31, 32 or 33 or if there is at least 10% reduction in borrower's energy consumption or the project generates renewable energy or renewable fuels, such as biodiesel or ethanol production.

Who qualifies for an SBA 504 loan?  A business must be for-profit and have less than 500 employees. Its net worth must not exceed $15.0 million and its average net income after taxes for the preceding 2 years must not exceed $5 million. Eligible businesses must be corporations, partnerships or proprietorships with a "sound business" purpose.

Do I have to personally guarantee an SBA 504 loan?
Anyone who owns 20% or more of the operating small business or the real estate must personally guarantee the loan.

Can I have my spouse or children own part of the real estate for tax purposes or estate planning?  Yes. Anyone can own the realty. The ownership of the realty does not have to match the ownership of the operating company. Many small business owners (for liability, tax or estate planning purposes) choose to have the building owned by someone other than themselves or the operating company.

What kind of terms can I expect from the first mortgage/first lien lender?  The first mortgage lender must provide at least a ten-year term when the SBA 504 loan is for 20 years and a seven-year term if the SBA 504 loan is for 10 years. The interest rate and terms on the first mortgage/first lien are negotiated between the Bank and the Borrower.

What is the interest rate for a 504 loan?  The rates are fixed and established at the SBA 504 closing. The 504 loans are pooled nationwide and sold to major institutional investors once each month. 

How long is the approval process?  Once GSBDC has received all the necessary items on the checklist, a Loan Committee meeting is scheduled with the Borrower present. If all is satisfactory, the Loan Committee recommends approval to the GSBDC Board of Directors within days. Upon Board approval, the application is forwarded to the SBA who will review it in 3 to 5 business days.

How does a 504 loan compare to a 7(a) loan?  Both are SBA guaranteed loans. The 504 loan is a low down payment, fixed-rate, long-term loan to assist a growing business to acquire a larger facility or more equipment. While the 7(a) loan can also be used to finance those costs, the down payment is generally higher and the interest rate typically floats at a higher rate. Hence, the total cost of a 7(a) loan to the company can be significantly higher than the cost of a 504 loan.

Job Creation Criteria  For every $65,000 of SBA 504 funds, 1 full-time permanent job must be created or retained within 2 years. If a company meets one of SBA's public policy goals and GSBDC has a sufficient loan to job ratio, this requirement may be reduced. If the borrower is a manufacturer in NAICs sectors 31, 32, or 33, the job creation requirement is one job per $100,000 of SBA 504 assistance.

How long does the process take?  It depends on the type and complexity of the loan. GSBDC can work with you to ensure you have all the necessary items for a review of your loan request.

How do I know if I qualify for a particular loan?  Call us! We'll work with you on the initial intake to go over your needs in relation to the type of loan that would be applicable to you.

Do I need a business plan for my start-up business?  Yes, every business should have a business plan. A business plan is required by any business lender. For assistance in preparing your business plan, please see the following websites: onondagasbdc.org or SyracuseTechnologyGarden.com

Do I need a down payment?  All loans require some equity injection. The amount will depend upon the financing request, available collateral, strength of the credit and financing program.