The shared financing structure of SBA 504 loans makes them a phenomenal deal for borrowers. For each 504 loan we do, we work with the SBA and a bank partner to finance up to 90% of project costs – so your down payment is only 10%.
Let’s look at a sample project to see how that smaller down payment requirement translates to significant savings. Say your business needed financing to purchase and renovate a building. Your costs might look like this:
|Furniture and equipment||$50,000|
SBA 504 deals include three parts: a commercial loan from a bank partner (who has first lien position), an SBA Loan, and the borrower’s down payment of 10%. For this example project, the financing package would look like this:
Bank loan (50% of project costs): $500,000, 10-year maturity, negotiable rate.
SBA loan (40% of project costs): $400,000, 20-year maturity, fixed and fully amortized rate.
Your contribution (10% of project costs): $100,000 down payment.
Compare this to a typical non-504 loan, which might require you to cover 100% of soft costs along with a 20% down payment. In this example, that would look like this:
Bank loan (80% of hard costs): $780,000
Your contribution: 100% of soft costs ($25,000) + 20% of hard costs ($195,000) =$220,000
In this case, getting an SBA 504 loan would cut your costs in half. Plus, because SBA 504 loans are also a good deal for our bank partners, banks are often able to offer favorable terms to 504 borrowers. Combine that with the typical long terms and low, fixed rates of SBA 504 loans, and the value of a 504 loan is clear.
The result? Using a 504 loan can easily save you thousands – money you can use to keep your business running strong.