The Small Business Administration 504 Loan or Certified Development Company Program was created to give Small Businesses access to business financing for the purchase of real estate, business and business equipment at below market rates. The program is designed to enable small businesses to create and retain jobs; the CDC’s portfolio must create or retain one job for every $35,000 provided by the SBA.
To qualify for an SBA 504 Loan a Small Business must have a net tangible worth not in excess of $6 million and cannot have an average income in excess of $2 million after taxes for the preceding two years. Typical examples of small businesses include: convenience stores, other small shops (such as a bakery or delicatessen), hairdressers, tradesmen, lawyers, accountants, restaurants, guest houses, photographers, small-scale manufacturing, and online business, such as web design and programming, etc.
The conventional SBA – 504 Loan has three participants: the bank which provides 50% of the loan, the CDC which provides the SBA guaranteed loan for up to 40% and the merchant who contributes 10%. To qualify for these loans the business must be owner operated, be for profit, be a sole proprietorship, corporation, partnership or a limited liability corporation.
The requirements for supporting the loan requests are as follows:
- A written description of the existing or proposed business.
- Resumes of each owner and key management personnel.
- Current personal financial statements are required for all principal owners (20% or more) and guarantors, together with copies of the last three years Federal Income Tax Returns.
- Written statement indicating how the loan funds are to be repaid, including repayment source and time required.
- For a proposed business provide a pro forma balance sheet reflecting source and use of both equity and borrowed funds.
- Financial data on business. For an existing business provide tax returns and financial statements for the past 3 years.
- Projections of future operations should be provided for at least one year on a monthly basis reflecting revenues and expenses with additional projections provided on a cash flow basis.
- Additional items are requested. These items might include: leases, purchase agreements, contracts, purchase orders, partnership agreements, franchise agreements, etc.
Owing to the time incurred in preparing the above-mentioned paperwork, the small business loan procedure can be a lengthy process, not to mention costly if the business owner needs to hire a professional to prepare the supporting business loan documentation required by the 504 Loan. Then, too, because this is funded in part by a traditional bank and in part by a CDC which guarantees its portion of the loan, good credit will be a major requirement. Unfortunately, with the economy having been in turmoil for such a prolonged period of time, not too many businesses are still standing in the “good credit” column.
Fortunately, for those seeking quick capital solutions with less paperwork and less scrutiny on the credit rating, there are alternative funding sources that don’t require the plethora of financial statements and businesses planning which banks need to underwrite a loan. Non-traditional lenders can typically offer businesses working capital loans, leasing/financing options, merchant cash advances, credit card processing and much more, with business loan terms from 6 – 18 months. The merchant can use capital however it’s needed and the loan is tax deductible. Normally, a loan can fund in 5 working days.
If you have questions about obtaining a working capital loan or our different financing products, please call the Underwriting Specialists at Liberty Capital Group, Inc. at: