Improve Your Business Credit for the SBA 504 Loan Program

As we’ve mentioned elsewhere on this site, you should have a credit score of 680 or higher if you want to apply for a 504 loan. That can be challenging for small businesses. Thankfully, there are ways that you can improve your credit and make your business a better funding candidate while reducing the level of risk for lenders.

• Dispute Errors: Check your business credit and, just as you would with your personal credit report, dispute any errors you see. By eliminating negative, erroneous information, you can automatically bump up your business credit score without having to really do much heavy lifting. Note that it can take time for the increase to show up, but you may consider explaining the situation to a lender, and this may be enough to convince them if they were on the fence.

• Ask for Reporting: Many vendors do not bother reporting business transactions. You can change that by asking them to do so. Of course, it’s important that you only ask vendors with whom you have a good reputation and where you are current on your payments.

• Cut Debt: Perhaps the simplest (and yet most challenging) way to improve your business credit is to cut your debt. That is often easier said than done, but it is possible. It’s also important to reduce your debt service coverage ratio, as we explained previously. Every debt that you can pay off increases your business credit and improves your DSCR.

There are additional steps that supposedly help improve your business credit, but those claims are doubtful. For instance, some so-called experts recommend applying for more credit. This makes sense on the surface, but when you dig a bit deeper, you come to realize that it is not necessarily a wise move. Yes, more unused credit makes your company appear more financially stable.

However, every application dings your credit score, reducing your creditworthiness. With that being said, if you are able to leave that new credit untouched and allow the ding to fall off your report, it can improve your credit score. You just need to invest the time.

We’re here to help you get the commercial financing you need. Simply fill out the form below for a risk-free consultation and a free SBA loan quote!

Related Questions

What are the requirements for an SBA 504 loan?

The requirements for an SBA 504 loan are as follows:

• Your business must be worth $15 million or less.
• You must operate as a for-profit entity (nonprofits are not eligible).
• You must meet SBA size requirements that pertain to small businesses. Note that size requirements vary by industry, so there is no one-size-fits-all answer here. You can find the current business size requirements set forth by the SBA here.
• Your average net income for the preceding two years prior to applying for the 504 program must be $5 million or less after income taxes.
• You cannot be engaged in passive activities.
• You cannot be engaged in speculative activities.
• You must meet job creation requirements, or, alternatively, meet community development or public policy goals.
• You cannot purchase and then hold real estate. Real estate purchased with the loan must be utilized for business needs.
• You cannot be engaged in any form of lending.
• You cannot have defaulted on a federal loan previously.
• You cannot be involved in any sort of political activity or lobbying activity.
• You cannot be involved in any form of gambling, nor can you operate a casino.
• The loan must be repayable from cash flow generated by the project in question.
• You must be able to provide the SBA with personal histories for all principals in your company.
• You must have a business plan, and it must be deemed feasible.
• You must plan to occupy at least 51% of the building if it is an existing structure, and 61% of the building if it is new construction.

Note that many businesses that qualify for 7(a) financing will also qualify for 504 financing, but not all, due to the more stringent requirements.

What are the benefits of an SBA 504 loan?

The SBA 504 loan program offers several benefits to businesses, including long-term, fixed-rate financing, lower interest rates and down payment requirements than SBA 7(a) loans and Express loans, and the ability to purchase fixed assets such as real estate and equipment. The loan is also backed by the SBA, reducing risk for lenders who put up half the cost of the project. In the case of default, the private lender has first lien on project assets. Terms for SBA 504 financing are typically 10, 15, or 20 years, and the loan is fully amortized without a balloon payment.

Sources:

• What Is an SBA 504 Loan?
• SBA 504 Loans: What You Need to Know

How can I improve my business credit score for an SBA 504 loan application?

You should have a credit score of 680 or higher if you want to apply for a 504 loan. Thankfully, there are ways that you can improve your credit and make your business a better funding candidate while reducing the level of risk for lenders.

- Dispute Errors: Check your business credit and, just as you would with your personal credit report, dispute any errors you see. By eliminating negative, erroneous information, you can automatically bump up your business credit score without having to really do much heavy lifting. Note that it can take time for the increase to show up, but you may consider explaining the situation to a lender, and this may be enough to convince them if they were on the fence.

- Ask for Reporting: Many vendors do not bother reporting business transactions. You can change that by asking them to do so. Of course, it’s important that you only ask vendors with whom you have a good reputation and where you are current on your payments.

- Cut Debt: Perhaps the simplest (and yet most challenging) way to improve your business credit is to cut your debt. That is often easier said than done, but it is possible. It’s also important to reduce your debt service coverage ratio, as we explained previously.

Every debt that you can pay off increases your business credit and improves your DSCR.

There are additional steps that supposedly help improve your business credit, but those claims are doubtful. For instance, some so-called experts recommend applying for more credit. This makes sense on the surface, but when you dig a bit deeper, you come to realize that it is not necessarily a wise move. Yes, more unused credit makes your company appear more financially stable.

However, every application dings your credit score, reducing your creditworthiness. With that being said, if you are able to leave that new credit untouched and allow the ding to fall off your report, it can improve your credit score. You just need to invest the time.

We’re here to help you get the commercial financing you need. Simply fill out the form below for a risk-free consultation and a free SBA loan quote!

What documents do I need to apply for an SBA 504 loan?

To apply for an SBA 504 loan, you will need to provide the following documents:

• Business tax returns for the previous three years
• Personal tax returns for the previous three years
• Personal history statement
• Personal financial statement
• Personal budget analysis
• Business financial statements for the previous three years
• Business debt schedule
• If you are applying for a loan for a hotel or motel, you will need:
  • Revenue and expenses breakdown for the past year (month to month)
  • Occupancy percentage and average daily rate information for the previous year (month to month)
  • Occupancy percentage and average daily rate for the area
  • Your hotel projection worksheet
• Interim financial statement (signed and dated, and including balance sheet and income statement dated within the previous two months)
• Accounts receivable aging (dated within the previous two months)
• Accounts payable aging (dated within the previous two months)
• Complete business plan
• One year of financial projections with assumptions
• Purchase agreement
• Written estimate from a contractor if the loan is for construction
• If this is a franchise, you will need a letter of intent from the franchisor and a FUOC and franchise agreement
• If you are buying another business, also include:
  • The business owner’s tax returns for the previous three years
  • Interim finance statement dated within the last 60 days
  • Signed purchase agreement with cost breakdown, amendments, etc.
• If you are using gift funds, you will need to provide a gift letter
• Previous government financing schedule
• Environmental impact questionnaire
• Application certification an authorization
• Documents pertaining to the ownership of other businesses and their finances (if applicable)
• Copy of loan agreement and SBA authorization if you have another SBA loan
• If you are refinancing a loan, you will need:
  • Copy of the original debt documentation
  • Your original purchase agreement, including settlement sheet,

For more information, please visit the SBA website.

What is the maximum loan amount for an SBA 504 loan?

The SBA 504 maximum loan amount is currently set at $5 million in lifetime dollars. However, if your business is a small manufacturer, you can borrow up to $5.5 million in lifetime dollars. It should also be noted that if you decide to embark on energy-related projects that fall under the “go green” heading, you can borrow substantially more. While all projects are capped at $5 million, you can ultimately borrow up to $16.5 million in lifetime dollars.

Source: https://sba504.loans/sba-504-blog/what-is-the-sba-504-maximum-loan-amount