Q&A of the Week October 18, 2023

Question

What is a 504 loan?

Answer

According to the U.S. Small Business Administration (SBA), the 504 loan program "provides long-term, fixed-rate financing for major fixed assets that promote business growth and job creation."

504 loans can be used to purchase or construct existing buildings or land, new facilities, and long-term machinery and equipment. They can also be used to improve or modernize land, streets, utilities, parking lots, landscaping, and existing facilities. 

504 loans cannot be used for working capital or inventory, consolidating, repaying, refinancing debt, or investing in real estate.

The maximum amount for a 504 loan is $5.5 million. Loan amounts, interest rates, and repayment terms vary based on the business, the Certified Development Company (CDC), and the bank that sources the loan.

To be eligible, businesses must meet the following criteria:

• Operate as a for-profit company in the U.S.

• Net worth of less than $15 million

• Average net income of less than $5 million after federal income taxes for the 2 years before applying

• Fall within SBA guidelines

• Qualified management expertise

• Feasible business plan

• Good character

• Able to repay the loan