What are the Qualifications for SBA 504 Loans

The Small Business Administration uses 504 loans to help small company owners in qualifying development areas to purchase major fixed assets, such as equipment and real estate. SBA 504 loans are part of a government-run economic development program. If you are a small business owner and you hope to take advantage of one of these loans, you’ll have to determine whether you qualify.

 

Loan Purposes

 

The first step is to understand the type of financing that is covered by the SBA 504 loans. It may actually be simpler to pinpoint the types of things that are not covered. For example, you may not use the loans to obtain working capital or for the purchase of inventory. You cannot use them of debt consolidation or to finance real estate development. You can use the 504 loan to buy a building, build a new facility or pay for improvements, buy land and improve it, purchase long-term machinery, and refinance debt you obtained while expanding your business or improving your facilities.

 

Small Businesses

 

Next, consider the size of your business. For the purpose of these loans, the SBA has defined small businesses as those with a “tangible net worth less than $15 million” and an average “net income less than $5 million after taxes.” To qualify, you’ll have to show these qualifications for the two preceding years. Some of the businesses that are ineligible for these loans include non-profit companies, businesses involved in lending, and businesses involved in speculative activities.

 

Rural, Women- and Minority-Owned Businesses

 

The SBA has a couple of categories of businesses in mind regarding their SBA 504 loans. If your business is located in a development area and you’re actively participating with Certified Development Companies, the CDC, you fall into the one of these specific categories. The CDC is a nonprofit established to boost the economic development within a specific community. Visit the SBA’s web page to determine whether you are located within a CDC-covered geographic area. The second category of businesses that qualifies for SBA 504 loans are those owned by women or individuals who belong to a minority and rural businesses. These specific categories of businesses can be researched at the SBA website.

 

Contact the SBA Office

 

If you believe you qualify for SBA 504 loans, there are a few steps to follow. Begin by contacting the SBA office located nearest you. (Again, refer to the website to locate those offices.) Review your business details and the purpose of the loan to determine whether you are eligible. Next, contact a Certified Development Company, and then prepare any documents relating to the loan application.

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