SBA 504 Loans

Financing Structures

Small businesses are recognized as innovators and employment generators. Their success and growth are critical to the health of America’s economy. However, small businesses sometimes encounter difficulties securing long-term financing at affordable interest rates.

Recognizing an opportunity to provide support, the Small Business Administration (SBA) offers businesses, and lending institutions that partner with them, an additional financing option with the SBA 504 Loan Program.

It is the job of the Great Lakes Commercial Finance (GLCF) to encourage the use of 504 lending throughout Michigan.

What is a 504 Loan?

A long-term, fixed-rate financing tool created by the U.S. Small Business Administration to help businesses purchase owner-occupied commercial real estate and equipment while retaining working capital.

The SBA 504 loan puts financing within reach for small businesses through low down payments and long-term, low, fixed interest rates. It also reduces the risk to lenders through a shared financing structure.

Eligible 504 loan uses:

  • Land and building purchases
  • New construction or renovation
  • Heavy machinery or equipment purchases and moving expenses
  • Soft costs (e.g., appraisals, title searches, attorney’s fees, etc.)
  • Refinancing

The SBA 504 loan boosts business expansion and supports economic development in communities nationwide.

Typical SBA 504 Loan Structure

  • 10% down payment requirement*
  • Lending financial institution (bank or credit union) loans 50% of the amount borrowed
  • GLCF contributes 40% of the financing guaranteed by the SBA
  • GLCF works with a financial institution to coordinate the financing
  • The borrower has two separate loans- one with GLCF/SBA and one with the lending financial institution

*10% down is usually in the form of cash, but existing equity in project land or a facility may count as part, or all, of the contribution. The minimum down payment may increase to 15% for ‘startup’ businesses (less than two years old) and specialized, single-purpose properties (such as a gas station) or increase to 20% for businesses that are both start-ups and single-purpose properties.

Borrower Benefits

  • As little as 10% down
  • Below – market, fixed interest rates
  • 25-year repayment terms on real estate & buildings
  • 20-year repayment terms on real estate & buildings
  • 10-year repayment terms on real estate, machinery & equipment

Eligible Purposes

  • Purchase of land, buildings, machinery, and equipment
  • Land improvements
  • Renovation or addition to an existing building
  • Construction of a new building
  • Leasehold improvements

Ineligible Purposes

  • Working or venture capital, goodwill or inventory, cars, trucks, or buses
  • Ineligible Businesses
  • Passive income and real estate companies, financial institutions, non-profit businesses, and casinos.