The Small Business Administration (SBA) 504 loan program provides long-term, fixed-rate financing for small businesses that need to purchase or improve real estate and equipment.
What is the Maximum SBA 504 Loan Amount?
The maximum loan amount for a 504 loan is $5 million, but specific energy projects may qualify borrowers for more significant amounts. For particular energy projects, the borrower can receive a 504 loan for up to $5.5 million per project, with a total limit of up to three qualifying projects not exceeding $16.5 million combined.
This higher limit is available for renewable energy projects and other green initiatives, such as solar panel installations and energy-efficient lighting upgrades that meet efficiency standards established by the Department of Energy.
The Small Business Administration (SBA) 504 loan program is designed to help small businesses obtain affordable real estate and equipment financing. Some of the advantages of the program include the following:
- Long-term, fixed-rate financing: SBA 504 loans offer long-term, fixed-rate financing, which provides small business owners with a predictable repayment schedule.
- Lower down payment requirement: SBA 504 loans require a lower down payment than traditional commercial real estate loans, making it easier for small businesses to obtain financing.
- Competitive interest rates: SBA 504 loans typically offer lower interest rates than traditional commercial real estate loans, which can save small businesses money over the life of the loan.
- No balloon payments: SBA 504 loans do not have balloon payments, which means that small business owners do not have to worry about making a large payment at the end of the loan term.
- Flexibility: SBA 504 loans can be used to finance various assets, including real estate, machinery, and equipment, which provides small business owners with flexibility in their financing options.
- Favorable terms: SBA 504 loans offer good loan terms, including low fees and longer loan terms, which can help small businesses reduce their financing costs.
- No prepayment penalty: SBA 504 loans do not have a prepayment penalty, meaning that small business owners can pay off their loans early without incurring additional fees.
- Secondary market: SBA 504 loans are sold on the secondary market, which provides small business owners with additional liquidity and financing options.
The SBA 504 loan program offers several advantages over traditional bank loans. It provides low down payment options of 10% or less while offering competitive interest rates and longer repayment terms of up to 25 years on real estate transactions and ten years on equipment purchases. Additionally, it allows small business owners to keep more of their capital in running their business instead of using it as collateral for a bank loan.
Please read our article about SBA Loan Status Disbursed Current. Additionally, learn more about Bankruptcy Clear SBA Loans!
Here is an example of how a small business might spend the loan amount:
- Purchase commercial real estate: The small business might use the loan amount to purchase a commercial property as their primary location for conducting business.
- Renovations and improvements: The loan amount can fund renovations and improvements to the commercial property to make it more suitable for the small business’s needs.
- Equipment purchases: The small business might use the loan amount to purchase new equipment to help them operate more efficiently or to expand their product or service offerings.
- Refinancing existing debt: The loan amount can also be used to refinance existing debt, which can help small businesses save money on interest and reduce their monthly payments.
- Working capital: Small businesses may also use the loan amount for working capital needs, such as paying employees or purchasing inventory.
The SBA 504 loan program aims to support economic development by helping small businesses secure long-term financing that will help them grow and expand their operations. Applicants must do their due diligence before applying to ensure they are eligible and able to qualify for the maximum amount they are seeking based on their specific needs and financial situation. Working with an experienced lender can help applicants navigate the process and understand the requirements to apply for an SBA 504 loan successfully.
After leaving Wells Fargo Bank in 2014, Daniel began a career as a finance consultant, advising companies and individuals on economic policy, labor relations, and financial management.
At Promtfinance.com, Daniel writes about personal finance topics, value estimation, budgeting strategies, retirement planning, and portfolio diversification.
Read more on Daniel Smith's biography page.
Contact Daniel: daniel@promtfinance.com