SBA 504 Loan Calculator With Payment & Amortization Table

SBA 504 Loan Overview

The SBA 504 Loan Program is a powerful financing tool designed to help small businesses acquire fixed assets, such as commercial real estate or heavy equipment, at favorable terms. This program is particularly well-suited for businesses looking to expand their operations by purchasing property, building a new facility, or upgrading significant machinery. Below, we cover everything you need to know about SBA 504 loans, including requirements, interest rates, down payment specifics, and more.

SBA 504 Loan Requirements

To qualify for an SBA 504 loan, you need to meet specific eligibility criteria, which include:

 

• • Business Size: Your business must fall under the SBA’s definition of a small business, typically having a net worth of less than $15 million and an average net income of less than $5 million over the previous two years.

• • Job Creation: One of the unique aspects of the SBA 504 loan is its job creation requirement. Generally, the borrower must create or retain one job for every $75,000 borrowed.

• • Owner-Occupied Property: The SBA 504 loan must be used for owner-occupied commercial real estate, meaning that at least 51% of the property must be occupied by the borrower’s business.

• • Other Requirements: Your business must operate as a for-profit entity in the United States, and you should have a viable business plan and solid financial history.

SBA 504 Loan Down Payment

One of the most attractive features of the SBA 504 loan is the relatively low down payment requirement. The typical down payment for an SBA 504 loan is 10% of the total project cost. However, this may vary based on certain conditions:

 

• • Startup Business: For new businesses (operating less than two years), a higher down payment of 15% may be required.

• • Special-Purpose Property: For properties considered “special-purpose” (such as hotels, gas stations, or amusement parks), the down payment might increase to 15-20%.

• • Standard Borrower Contribution: In most cases, the borrower can expect to contribute around 10% as a down payment, making the SBA 504 loan a very cost-effective way to acquire real estate or equipment.

SBA 504 Loan Interest Rates

The interest rates for SBA 504 loans are typically lower than market rates because they are backed by the Small Business Administration and involve Certified Development Companies (CDCs). SBA 504 loans have fixed interest rates, which are determined at the time of funding. Currently, the first lender interest rates are 4.5%, making these loans an attractive option for businesses looking to finance major projects.

 

• • Fixed Rate: The CDC portion of the loan (up to 40% of the total cost) comes with a fixed interest rate, which ensures predictable monthly payments.

• • Market Rate for Bank Portion: The bank-provided portion of the loan (50% of the cost) is typically subject to market interest rates, which may vary.

SBA 504 Loan Terms

The SBA 504 loan offers long repayment terms, making monthly payments more affordable. Typical loan terms include:

 

• • 10-Year Term: For financing equipment and machinery.

• • 20-Year Term: For most real estate purchases.

• • 25-Year Term: Also available for certain real estate projects.

The long repayment period allows small business owners to keep their cash flow intact while benefiting from favorable interest rates and predictable payments.

SBA 504 Loan Structure

The SBA 504 loan is structured differently from other loans because it involves three parties:

 

1. 1. Certified Development Company (CDC): Covers up to 40% of the total project cost at a fixed interest rate.

1. 1. Bank or Lender: Provides 50% of the project cost, typically at a variable interest rate.

1. 1. Borrower: Contributes the remaining 10% (or more if it is a startup or special-purpose property).

This combination of fixed and variable financing helps keep interest rates low while minimizing the borrower’s contribution.

What Can an SBA 504 Loan Be Used For?

An SBA 504 loan can be used for a wide range of purposes related to acquiring or improving fixed assets. Here are the most common uses:

 

• • Purchasing Commercial Real Estate: This includes buying land, existing buildings, or new construction.

• • Renovating or Expanding Existing Facilities: Funds can be used to renovate, modernize, or expand current commercial properties.

• • Heavy Equipment Purchases: SBA 504 loans can finance the purchase of expensive machinery that will last over ten years.

• • Refinancing Debt: In some cases, SBA 504 loans can be used to refinance debt related to commercial real estate or equipment, allowing businesses to take advantage of lower interest rates.

SBA 504 Loan Prepayment Penalty

One thing to be mindful of when considering an SBA 504 loan is the prepayment penalty. This penalty is typically assessed if the borrower pays off the loan early within the first half of the loan term (usually the first 10 years of a 20-year loan). The prepayment penalty decreases over time and eventually phases out completely. Understanding this aspect is crucial for businesses that might want to refinance or pay off their debt early.

SBA 504 Loan Limits

The maximum amount that can be borrowed through the SBA 504 loan program is $5.5 million for most projects. However, there is no limit on the total project cost, as multiple sources of funding are used (CDC, bank, borrower). For small manufacturers, the loan amount can be even higher.

SBA 504 Green Loan Program

In a significant new development, the Biden-Harris Administration has announced the removal of the $16.5M aggregate cap on the SBA 504 Loan Program for clean energy projects. This change, declared by SBA Administrator Isabel Casillas Guzman, aims to provide small businesses with the capital needed to innovate and adopt sustainable practices, aligning with President Biden’s goal of net-zero emissions by 2050.

With the elimination of the lending cap, small enterprises are now able to secure multiple 504 loans of up to $5.5 million each with no aggregate limit. This is part of broader efforts to democratize investment in clean energy, positioning small businesses as key players in this transition.

Key Benefits of the SBA 504 Green Loan Program:

 

• • Larger SBA/CDC Loan Amount: SBA maximum per project contribution increases to a $5.5 million cap with no maximum total project limit.

• • Higher Option for Aggregated Lending: Borrowers can have multiple SBA 504 Green Project loans with no aggregate cap limit on the number of loans or capital (up to the maximum SBA/CDC contribution of $5.5 million per project).

• • Save Money: Reduction in energy costs will have long-term financial benefits for the business, while most energy improvements/equipment can be financed within the loan.

Eligibility Requirements for SBA 504 Green Loans:
To qualify, borrowers must meet at least one of the following goals:

 

1. 1. Reduce energy use by at least 10%: Improvements to a building currently occupied by the borrower must show a minimum of 10% reduction in energy usage (compared to historical consumption) through upgrades in equipment, such as improved lighting, insulation, HVAC, and other energy-consuming equipment. Borrowers purchasing or constructing a replacement property must be relocating to a similar region (as determined by the SBA) with potential for similar historical energy consumption.

1. 1. Generate at least 15% renewable energy: The property must have upgrades performed that produce at least 15% renewable energy. Eligible energy types include solar, wind, geothermal, hydropower, and biomass.

1. 1. LEED Certification: If historical energy consumption records for the property are not available, a project can qualify if it is built or retrofitted using LEED certification standards through the completion of upgrades.

The SBA’s focus on clean energy funding highlights its commitment to advancing a clean energy economy. By increasing financial support, the SBA empowers small businesses to implement energy-saving measures and renewable energy projects, fostering innovation and promoting economic growth and sustainability.

SBA 504 Loan Limits

The maximum amount that can be borrowed through the SBA 504 loan program is $5.5 million for most projects. However, there is no limit on the total project cost, as multiple sources of funding are used (CDC, bank, borrower). For small manufacturers, the loan amount can be even higher.

Benefits of an SBA 504 Loan

 

• • Low Down Payment: Only 10% is required, which helps businesses conserve capital.

• • Fixed Interest Rates: The CDC portion of the loan has a fixed rate, allowing for predictable budgeting.

• • Long Terms: With terms of up to 25 years, the SBA 504 loan helps keep monthly payments manageable.

• • Accessible to a Variety of Businesses: Ideal for companies looking to expand their physical footprint or invest in long-term equipment.

SBA 504 Loan for Commercial Real Estate

The SBA 504 loan is an excellent choice for businesses looking to acquire commercial real estate. Whether you are purchasing an existing building, constructing a new facility, or making substantial renovations to a current property, the SBA 504 loan provides the funding necessary to grow your business. The combination of fixed interest rates and long repayment terms makes it a financially sustainable option for many businesses.

How to Apply for an SBA 504 Loan

Here are the key steps to applying for an SBA 504 loan:

 

1. 1. Prepare Your Business Plan: Include detailed financial projections and explanations of how the loan will benefit your business.

1. 1. Gather Necessary Documents: These include tax returns, financial statements, business licenses, and more.

1. 1. Find a Certified Development Company (CDC): Partner with a CDC that will help guide you through the SBA 504 loan process.

1. 1. Submit Your Application: Work with your CDC and a participating lender to submit the loan package to the SBA.

SBA 504 Loan Calculator

Use our SBA 504 Loan Calculator at the top of the page to estimate your monthly payments, down payment requirements, and overall costs. This tool provides a simple way to visualize your financing options and understand what to expect from the SBA 504 loan program.

Ready to Get Started?

If you’re interested in acquiring an SBA 504 loan for your business, we can help you connect with Certified Development Companies and lenders who understand your needs. Contact GoSBA Loans today for personalized guidance.

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Explore our comprehensive SBA 504 Loan Calculator to estimate costs and learn everything you need to know about SBA 504 loans, including requirements, down payments, and more.