What Is the SBA 504 Loan Application Process?
The SBA 504 loan application process is actually relatively simple. Before applying, however, borrowers should make sure that they meet the eligibility requirements for 504 loans . Other steps include finding a CDC as well as choosing the lender that will contribute the other part of your loaBetter 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
What Is the SBA 504 Loan Application Process?
The SBA 504 loan application process is actually relatively simple. Before applying, however, borrowers should make sure that they meet the eligibility requirements for 504 loans. Other steps include finding a CDC as well as choosing the lender that will contribute the other part of your loan proceeds. To help you better understand the SBA 504 loan application process, we’ve created an easy, step-by-step list:
Make sure you qualify for the 504 loan program. You can learn more with the SBA.
Find a CDC. Your local SBA office can help you connect. OR, you can find an SBA-approved lender.
Complete the pre-qualification process with your lender/CDC.
Get all of the required paperwork together. Your CDC can help you determine what paperwork is necessary.
Complete the loan application, and all other required forms, and finalize the terms of your loan.
Find a lender if you have not already done so.
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 are required for an SBA 504 loan application?
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,
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.
What is the timeline for the SBA 504 loan application process?
The timeline for the SBA 504 loan application process depends on the complexity of the loan and the availability of the required documents. Generally, the process can take anywhere from 30 to 90 days. The SBA recommends that you start the process as soon as possible to ensure that you have enough time to complete all the necessary steps.
The SBA also recommends that you contact your local SBA office or a Certified Development Company (CDC) to get more information about the timeline for the SBA 504 loan application process.
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 advantages of an SBA 504 loan?
The SBA 504 loan program offers several advantages to businesses in need of purchasing fixed assets. These include:
- Lower interest rates than 7(a) loans and express loans
- Lower down payment requirements than 7(a) loans and express loans
- Long-term, fixed-rate financing used to acquire fixed assets for expansion or modernization
- Fully amortized without a balloon payment
- Terms for SBA 504 financing are typically 10, 15, or 20 years
For more information, please visit https://sba504.loans/sba-504-blog/what-is-the-sba-504-loan and https://www.sba.gov/offices/headquarters/ofa/resources/4049.
What are the disadvantages of an SBA 504 loan?
The disadvantages of an SBA 504 loan include:
- The involvement of a CDC, which often lengthens the process.
- They may not be used for working capital, consolidating debt, or purchasing inventory.
- There are significant paperwork requirements.