SBA (Small Business Administration) financing is often considered the gold standard of small business loans because the terms are typically more attractive than other financing options. SBA loans tend to carry the lowest interest rates and the longest repayment terms, all while offering substantial loan amounts that small business owners may not otherwise qualify for. If SBA loans come with such advantageous terms, many small business owners wonder - is it hard to get an SBA loan?
The short answer – No, it is not hard to get an SBA loan! Most businesses are eligible and qualifying is easier than you might think!
The SBA 504 loan is specifically designed to help small businesses expand by purchasing fixed assets such as real estate and equipment. It can also be used to finance construction and renovations. Most for-profit businesses in the United States are eligible for an SBA 504 loan. There are a few stipulations, but generally, the 504 loan can accommodate a unique array of business needs.
Bottom line - do not rule your business out.
Before we examine the details of how to prequalify for an SBA 504 loan, let’s take a closer look at how the loan is administered.
How is SBA 504 Loan Issued?
The 504 loan has a unique structure, in that it is a partnership between a non-profit Certified Development Company (CDC), such as TMC Financing, which administers the SBA portion of the loan, and a conventional lender such as a bank or credit union. A CDC’s mission is to help match you with the loan product that will best support your business's growth, gain long-term success and create a positive impact on your community. TMC Financing will guide business owners through the entire loan process and act as the owner’s advocate throughout the life of the loan.
In a typical SBA 504 loan scenario, the SBA would provide 40% of the total project costs, a participating lender would cover up to 50% of the total project costs, and the borrower would inject a 10% down payment.
This 50-40-10 structure is the most common loan breakdown, but in some cases, such as if the property being purchased is a single-use property, the borrower may be required to pay a 15% down payment. Yet in either case, this is a win-win situation. A small business owner taking out an SBA loan ensures a low down payment, the best interest rates on the market, and a repayment period that lasts up to 25 years, which eases the burden of monthly payments.
SBA 504 Eligibility Requirements
For-Profit Business
The most basic 504 loan requirement is that you must have a U.S.-based, for-profit business. Non-profit businesses, as well as the following industries, are deemed ineligible:
- Lending businesses
- Political/lobbying businesses
- Life insurance companies
- Businesses with primary revenue from gambling
- Most passive income businesses
Occupancy
The SBA 504 Loan is intended to help small businesses purchase property or fixed assets for their business. To keep the integrity of the program, there are occupancy requirements that must be met.
- The applicant’s business must occupy at least 51% of the property being purchased
- For new construction, the applications business must occupy a minimum of 60% of the property
The occupancy requirements allow small business owners to purchase more space than what they need so they can lease out a portion of their space and increase their cash flow.
Size Standard
Don’t let the word ‘small’ deter you from the program. According to the SBA, 99.7% of all U.S. firms are considered ‘small’ businesses. As a general rule:
- The tangible net worth of the business cannot exceed $15 million
- After-tax profit for the last two years cannot exceed $5 million
However, even if you exceed what is listed above, alternative size standards based on number of employees can be met. This exception is different for all industries, so your CDC is your best resource to see if you can qualify with alternative size standards.
How Else Can I Spend my SBA 504 Funds?
SBA 504 loans are most often used for the purchase of real-estate, such as land and buildings, but the funds can also be used to construct, upgrade or renovate business property. The SBA 504 loan program also allows business owners to finance equipment and other fixed assets, such as fixtures, furnishings, and machinery with a service life of at least 10 years. Some equipment financing examples include commercial printing equipment, medical & dental machinery, and gym equipment.
Now, let’s circle back on how small business owners can prequalify for one of the best small business financing options available.
Prequalifying for a 504 loan
TMC Financing can prequalify borrowers looking to purchase a building in California or Nevada within 48 hours. It is a seamless process at no cost to the potential borrower. Three documents are needed – three years of personal and business tax returns, a personal financial statement, and interim financials.
TMC acts as your advocate starting with the prequalification and continues to provide guidance throughout the entire loan process. The prequalification gives you the opportunity to establish a relationship with a Certified Development Company that will be your supporter from start to finish.
So in conclusion, is it hard to get an SBA loan? No. Qualifying for a 504 Loan is simple and most for-profit businesses are eligible for SBA funding.
Don’t hesitate. Contact TMC Financing to help guide you through the next steps!
More About TMC Financing
TMC Financing is an SBA Premier Certified Lender and a high-volume loan provider. TMC has over 35 years of expertise and has helped over 5,000 businesses. TMC operates in California and Nevada and is your best source for SBA 504 Financing. Contact a TMC loan expert to find out more about the prequalification process for 504 loans and how to put your business one step ahead
Download Pre-qualification application here.