If you have been an avid reader of our blogs (and if you’re not, you should be!), we’ve written a lot about the many ways an Small Business Administration (SBA) 504 loan can benefit small business owners as well as their communities, but 504 funding can’t be used for just any kind of business expense. The SBA Section 504 Loan Program was designed specifically to help small businesses with long-term, fixed asset financing.
According to the SBA, “The 504 Loan Program provides approved small businesses with long-term, fixed-rate financing used to acquire fixed assets for expansion or modernization.”
What You CAN Use 504 Funding For
The money from an SBA 504 loan can be used to purchase land, buy a building, finance ground-up construction or building improvements, or purchase heavy machinery and equipment. Typically, 504 loans are applied to the following expenses:
Land
Building
Machinery / Equipment
Building with renovations
Construction contingencies
Debt Refinance with expansion
Interest and Loan fee (on interim loan)
Professional fees (appraisal, environmental, title insurances, document stamps, etc.)
SBA 504 loans are made available through Certified Development Companies – like SEDCO – and offer a number of advantages over traditional business loans for those who qualify, including low fixed-interest rates, long-term financing, and no balloon payments.
In short, these loans are great for qualified small business owners looking to fund fixed-asset purchases!
What You CAN’T Use 504 Funding For
You can’t use 504 funding for any expenses other than the fixed assets listed above. If you have additional funding needs, you may want to look into an SBA 7(a) loan which has less usage restrictions. You can use a 7(a) loan – NOT a 504 loan – for:
· Start-up costs
· Business acquisition
· Working capital
· Inventory
· Business supplies/furniture
· Technology upgrades
The SBA 7(a) loan will also fund real estate, machinery and equipment costs – although, if that’s all you need financing for, the 504 program may offer you better terms. (See 504 vs. 7(a) Comparison Chart). Also, keep in mind that depending upon your needs, you may be able to secure both a 504 loan and a 7(a) loan at the same time so that each loan covers allowable expenses.
If you aren’t sure which SBA loan program is the best fit for you, we’d love to help. We’re experts in helping small businesses get the funding they need as quickly and easily as possible. Contact us to learn more.
Sunshine State Economic Development Corporation (SEDCO) is a not-for-profit certified development corporation (CDC) licensed by the U.S. Small Business Administration to offer the SBA 504 Loan Program throughout the state of Florida. SEDCO can provide your expanding small business with alternative financial resources, sound financial advice, and business acumen. Helping small business succeed is our business. For more information, visit our website or contact us.