SBA 504 SOP (Standard Operating Procedures): What You Need to Know
The SBA has SOPs, or standard operating procedures, in place for all of its loan programs. These procedures speak to a wide range of things, from borrower contributions to limitations on what loans can be used for, how default loans are handled by the agency, and a great deal more.Start Your Application and Unlock the Power of Choice$5.6M offered by a Bank at 6.1%$1.2M offered by a Bank at 6.0%$2M offered by an Agency at 5.6%$1.4M offered by an SBA Lender at 9%Click Here to Get Quotes!
SBA 504 SOPs: The Basics
The SBA has SOPs, or standard operating procedures, in place for all of its loan programs. These procedures speak to a wide range of things, from borrower contributions to limitations on what loans can be used for, how default loans are handled by the agency, and a great deal more. Each year, the SBA publishes changes to their SOPs as these loan programs are further developed to meet the needs of businesses in the United States. You can find a complete list of all SOPs and download the information for each set of SOPs in PDF format here.
Some of the most recent 504 SOP changes include increasing the borrower contribution for special purpose businesses or organizations in operation under two years (moved up to 15%, or 20% in some instances). Energy projects and manufacturers also had their caps increased to $16.5 million total per lifetime, as long as they remain at $5.5 million per project.
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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.
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 lower down payment requirements than SBA 7(a) loans and express loans. The loan is also designed to allow those purchases at below market rates. Additionally, the SBA 504 loan program must be used for projects that will create a specific number of jobs per the amount of money loaned, or it must meet some type of community development goal or public policy goal while complying with the job average requirements that pertain to Certified Development Companies (CDCs).
What are the different types of SBA 504 loans?
The SBA 504 loan is used for economic development and cannot be used for working capital or inventory. This loan often offers a lower down payment, lower interest rates, and lower fees, depending on the size of the economic development project. SBA 504 loans are only available through the CDC and require a significant amount of paperwork and time.
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.
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. Factors that go into determining the length of time to loan approval include:
- Your ability to gather all required information
- Your ability to satisfy all lender requirements for information and proof of income
- SBA approval (up to 7 days)
- Due diligence (2 to 3 weeks)
- Closing (up to 14 days)
According to SBA Express Loans, the estimated closing time for an SBA 504 loan is 45 days, though this process can significantly longer, depending on the individual circumstances.