What Is the Required SBA 504 Loan Down Payment?
When you take out an SBA 504 loan , you will be required to make a down payment . That down payment will generally be 10% of the loan’s total value. However, there are situations in which you could be required to put down significantly more money.Better 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 Payment Requirements
When you take out an SBA 504 loan, you will be required to make a down payment. That down payment will generally be 10% of the loan’s total value. However, there are situations in which you could be required to put down significantly more money.
For instance, 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.
In all instances, the conventional lender’s contribution remains 50%. The CDC’s contribution reduces, though, moving from 40% to 35% if you’re required to pay 15% down, and from 35% to 30% if you’re required to put down 20% of the loans’ value.
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What is the minimum down payment for an SBA 504 loan?
The minimum down payment for an SBA 504 loan is 10%. However, if the building is considered a “special purpose” place, as in it has one specific purpose (like a hotel or car wash), or if the business is less than 2 years old, an investor would be required to pay 15% as a down payment for the loan. If the business is less than 2 years old and a specialty building is required, then investors could be required to pay as much as 20%.
For more information, please visit https://sba504.loans/sba-504-blog/what-is-the-required-sba-504-loan-down-payment and www.commercialrealestate.loans/blog/sba-504-loans-and-commercial-real-estate-what-you-need-to-know.
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 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.
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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.
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.