An SBA 504 loan, which is guaranteed by the U.S. Small Business Administration, offers long-term financing for buying equipment, real estate, and other types of fixed assets. There are three different parties involved with the SBA 504 loan – the bank, the person borrowing the money, and the CDC – a certified development company. The SBA 504 loan offers either 10- or 25-year terms, along with low interest, and down payments of 10 to 20 percent.

Who Is Considered Eligible for the SBA 504 Loan?

With an SBA loan program, to qualify isn’t exactly an easy process. The loan is usually only available to creditworthy borrowers. Also, most of the 504 loans will be given to businesses that are already established. If you own a startup, you may still be able to qualify; however, you should demonstrate strong financials and excellent credit.

Requirements for the SBA 504 Loan

If you want a chance of qualifying for this financing option, you have to meet the requirements of the program. You have to meet the SBA’s size standards for all small businesses, and this is something that will differ based on your industry. You must also have a total net worth that is lower than $15 million along with a net income average of $5 million or under after your federal income taxes for about two years before your application.

Other qualifications that you have to meet include the owner-occupancy requirements promote public policy goals and your business has to operate for profit and not be found in a passive industry (i.e. real estate investing).

With all the requirements in mind, the ones that will trip up the majority of businesses are the jobs, public policy requirements, and owner-occupancy rates. For an SBA 504 loan used for renovating buildings, you (as the applicant) has to occupy a minimum of 51 percent of the property. The remaining is allowed to be leased out to a third party or parties. If the property is new construction, it’s necessary for the application to occupy a minimum of 60 percent of the property.

Fully understanding the requirements for the SBA 504 loan is a must if you want to qualify for it. Be sure to keep the information here in mind when applying, as this is going to ensure that the desired results are achieved. In some cases, it is a good idea to work with the professionals who can help ensure that you have the best chance for approval possible.