Using SBA 504 Loans to Buying Business Vehicles

While most business loans can be used for anything your company might need, that’s not the case with the SBA 504 loan. It is strictly to be used for real estate-related needs, or for the purchase of heavy equipment. That eliminates the purchase of vehicles, even if you intend to purchase fleet vehicles for your business. There are some exceptions to this rule, but only when the vehicles being purchased qualify as heavy equipment. Some examples of this can include:

• Cement trucks

• Dump trucks

• Custom-build heavy trucks fit for specific purposes (loading/unloading septic tanks, for instance)

• Semis and tanker trailer trucks

In short, most businesses will not be able to use a 504 loan to purchase vehicles, unless those vehicles qualify as heavy equipment vital for the business to pursue its purpose.

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Related Questions

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.

What types of vehicles can be purchased with an SBA 504 loan?

The SBA 504 loan is strictly to be used for real estate-related needs, or for the purchase of heavy equipment. That eliminates the purchase of vehicles, except when the vehicles being purchased qualify as heavy equipment. Some examples of this can include:

• Cement trucks
• Dump trucks
• Custom-build heavy trucks fit for specific purposes (loading/unloading septic tanks, for instance)
• Semis and tanker trailer trucks

In short, most businesses will not be able to use a 504 loan to purchase vehicles, unless those vehicles qualify as heavy equipment vital for the business to pursue its purpose. Source

What are the advantages of using an SBA 504 loan to finance a vehicle purchase?

The SBA 504 loan is a great tool for businesses looking to purchase or expand their auto repair shop. It can be used to purchase and improve the real estate on which the shop will be located, as well as to buy equipment such as air compressors, vehicle lifts, scan tools, tire mount machines, and wheel balancers. It can also be used to reduce the environmental impact of the shop. However, it cannot be used for working capital.

Unfortunately, the SBA 504 loan cannot be used to purchase vehicles, unless those vehicles qualify as heavy equipment vital for the business to pursue its purpose. Examples of this can include cement trucks, dump trucks, custom-build heavy trucks, semis, and tanker trailer trucks.

What are the repayment terms for an SBA 504 loan?

The repayment terms for an SBA 504 loan are 10 to 20 years (fully amortizing). The loan to value (LTV) is up to 90%, and the debt service coverage ratio (DSCR) is a minimum of 1.20x on existing cash flow. The principal owners are also required to produce personal guarantees.

Source: www.commercialrealestate.loans/sba-504-loan and sba504.loans/loan-requirements

What documents are required to apply for an SBA 504 loan?

When applying for an SBA 504 loan, you’ll need to provide the CDC and your lender with a very wide range of documentation. The most commonly required documents include:

• 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,

In addition, if the loan proceeds are being used to purchase an existing business, you will also need:

• P&L statement of the business you are buying and an up-to-date balance sheet.
• Income tax returns of the business you are purchasing dating back two years.
• Terms of sale and the proposed bill.
• A list that includes the schedule of inventory, furniture, fixtures, machinery and equipment, and the asking price.