Our small business owners are often eager to cut to the chase. With close to 40 years in the industry, TMC Financing has been asked this question over and over: How much can I get with an SBA Loan? Well, the answer is not so black and white.
First of all, there are several SBA Programs that small business owners can turn to when they are in need of financing. Here is a brief run down, excluding some loans targeted more specifically such as the SBA Export Loan and SBA Disaster Loans.
SBA Microloan: Ideal for business owners in need of a small amount of financing. Funds can be used to start or expand a business. Funds cannot be used towards real estate or to refinance. No down payment is required however collateral is.
So, how much can you get with an SBA Microloan? Borrowers can get up to $25,000.
SBA 7a Loan: This the most common SBA Loan, best used when financing is needed for working capital. Funds can also be used for fixed assets, construction, and for refinancing. The down payment starts at 10%, the interest rate is typically variable, and collateral is often required.
So, how much can you get with an SBA 7a loan? Borrowers can get up to $5,000,000. This is the maximum total project cost.
SBA 504 Loan: The 504 Loan is a lesser known SBA Program that can be used to purchase fixed assets such as real estate or equipment. Funds can also be used for construction, tenant improvements, and refinancing. The down payment starts at 10%, the rate is below–market and FIXED for up to 25 years, and no additional collateral is required.
So how much can you get with an SBA 504 Loan? Here is where the gray area lies.
With an SBA 504 Loan, most business owners can get up to $5,000,000 from the SBA and certain circumstances will allow them to get up to $5,500,000. However, this does not mean there is a cap on total project cost like there is with the 7a loan. Due to the unique structure of the SBA 504 Loan, there is no limit to the total project cost.
How SBA 504 Loans Work
To better understand the total financing allowance, an overall structure run down will help. The 504 loan program partners a Certified Development Company (CDC) like TMC Financing with a conventional lender to provide a loan in three parts:
- The first is a loan from a conventional lender for at least 50% of the total amount. You and that lender determine the amount and conditions of that loan, which becomes your first mortgage. If you do not have a conventional lender already, TMC can help match you with the perfect banking partner for this loan.
- Your CDC facilitates a separate SBA loan of 40% of the total, up to $5.5 million, at a fixed, below-market rate.
- Then you, the borrower, will contribute a down payment as low as 10%.
- 50% - Bank
- 40% - CDC
- 10% - Borrower
While the CDC/SBA portion is capped, there is no limit to the bank portion of the loan —bringing total possible funding as high as $20 million. The maximum loan amount on the CDC portion of the loan is $5 million, extending up to $5.5 for certain borrowers. Which brings us to the next question:
Who qualifies for a $5,500,000 SBA maximum?
There are two ways borrowers can increase the SBA per project maximum from $5,000,000 to $5,500,000.
1) Be a manufacturer. Manufacturers can borrow $5,500,000 per project from the SBA and there is no limit to the number of 504 loans they take out.
2) Implement SBA energy-efficiency measures into your project. This can be done in a few ways:
- Buy or construct a building that consumes 10% less energy than your current location
- Make upgrades to the building you own to consume 10% less energy, or buy the building you now lease and do so
- Buy or construct a building that produces 10% of the energy it consumes or that produces fuel to reduce fossil fuel consumption, or buy equipment to do so at your current location
When these energy efficiencies measures are implemented, you are able to get an aggregate amount of $16,500,000 from the SBA. The project limit remains at $5,500,000 on the SBA portion however you can take out multiple 504 loans as long as the aggregate amount does not exceed $16,500,000.
As you can see, when we are asked, “how much can I get with an SBA loan?’ the answer is not always a simple one. The bottom line is that with an SBA 504 Loan, there is no limit to the total project cost. The SBA portion is capped at $5,000,000 but TMC’s SBA Experts can help you increase the SBA maximum to $5,500,000 if needed.
About TMC Financing
TMC Financing is an SBA Premier Certified Lender and a high-volume loan provider. Its loan experts are ready to guide you through the process of obtaining a first, or an additional, 504 loan. Contact a TMC loan expert today to find out more about this and other ways the 504 loan can be tailored to your specific needs.