Can You Borrow Money for an SBA 504 Loan Down Payment?
Yes, you can borrow money for use as an SBA 504 loan down payment. However, you need to comply with some basic requirements in order to use borrowed money as a down payment. For instance, according to the SBA, “if the small business applicant can demonstrate repayment of this personal loan from soBetter Financing Starts with More Options$1.2M offered by a Bank at 6.0%$2M offered by an Agency at 5.6%$1M offered by a Credit Union at 5.1%Click Here to Get Quotes
SBA 504 Loan Down Payments and Borrowed Funds
Yes, you can borrow money for use as an SBA 504 loan down payment. However, you need to comply with some basic requirements in order to use borrowed money as a down payment. For instance, according to the SBA, “if the small business applicant can demonstrate repayment of this personal loan from sources other than the cash flow of the business, the cash injection may be considered equity. (Note: the salary of the business owner does not qualify.).”
So, you can borrow money to use as your 504 loan down payment, but repaying that loan must be done with a source of capital outside the business taking out the 504 loan. This could be another business that you own, a home equity loan combined with another job you work, a conventional loan repaid by money from your spouse’s job, and more. You’ll need to demonstrate to the SBA that you can repay the loan used as a down payment and that you can still afford the 504 loan.
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What is the minimum down payment required for an SBA 504 loan?
The minimum down payment required for an SBA 504 loan is 10% of the loan’s total value. However, if you run a special purpose business (as listed by the SBA) or your business has not been in operation for at least two years, then you will be required to put down 15% of the loan’s value. If your business is considered a special purpose property and it has not been in operation for two years, then you will be required to put down 20% of the loan’s value.
You can find more information about down payments for SBA 504 loans here.
What types of collateral are accepted for an SBA 504 loan?
The SBA 504 loan requires collateral for the loan, typically in the form of real estate, equipment, or other high-value assets. The SBA requires that the collateral be sufficient to cover the loan amount, and the lender may require additional collateral. The SBA also requires that the collateral be in the name of the business, not the individual.
Source: www.sba7a.loans/sba-7a-loans-small-business-blog/qualifying-for-an-sba-7a-loan and www.sba7a.loans/eligibility-and-qualifications-for-the-sba-7a-loan
What are the eligibility requirements for an SBA 504 loan?
In order to take out an SBA 504 loan, your business must meet the following eligibility requirements:
- Your business must be a for-profit organization.
- Your business must meet current SBA size standards.
- Your business’ net worth cannot exceed $15 million.
- Your business cannot earn 1/3 or more of its income from packaging SBA loans.
- Your business must earn an average of $5 million or less per year (after taxes, and only for the preceding two years).
- Your business cannot be engaged in any sort of passive or speculative activities.
Note that additional requirements may be placed by CDCs or conventional lenders. You can find a full list of eligibility requirements and other important information with the SBA here.
How long does it take to get approved for an SBA 504 loan?
The length of time required for an SBA 504 loan to be approved can vary drastically, but averages between 60 and 90 days. With that being said, it may take up to six months in some situations. There is no hard and fast rule here, and each situation will be unique.
According to SBA Express Loan Closing Times Compared to Other SBA Loans, the estimated closing time for an SBA 504 loan is 45 days, though this process can significantly longer, depending on the individual circumstances.
What are the advantages of an SBA 504 loan compared to other financing options?
The SBA 504 loan is a great option for businesses looking to finance the purchase of owner-occupied commercial real estate, heavy equipment, and other fixed assets. It offers low interest rates and long repayment terms of up to 20 years. Additionally, the SBA 504 loan program is designed to help small businesses grow and create jobs, so it can be easier to qualify for than other financing options.
The SBA 504 loan also offers a number of other advantages compared to other financing options, including:
- No balloon payments
- No personal guarantees
- No prepayment penalties
- No collateral requirements
- No minimum credit score requirements
For more information on the SBA 504 loan and other financing options, you can check out this resource from the SBA.