Is an SBA 504 Loan Right for Your Small Business?

Are you looking for a loan for your business but aren’t sure if a conventional loan or an SBA loan would be more appropriate for your needs? Navigating the various types of loans and narrowing it down to the right one is challenging. The commercial lenders at Crews Bank & Trust are experts and are always ready to work with you to help determine the best loan for your business.

For small businesses looking to finance significant purchases like real estate or large equipment, the Small Business Administration (SBA) 504 loan offers an affordable solution. Thanks to its low interest rates and long repayment terms, this loan is a great option for owners in need of substantial funding. However, like other SBA loans, it comes with a detailed application process and specific qualifications, making it essential for business owners to understand the ins and outs before applying.

Let’s dive into how SBA 504 loans work and what you need to know to qualify.

SBA 504 Loan vs. SBA 7(a) Loan: What's the Difference?

It’s important to understand the key differences between the SBA 504 loan and the SBA 7(a) loan. While both loans are backed by the U.S. Small Business Administration, their purposes, loan amounts, and uses are distinct.

SBA 7(a) loans – This type of loan is typically used for general business needs, such as working capital or business expansion.

SBA 504 loans - On the other hand, this type of loan is designed specifically for purchasing or improving fixed business assets, like commercial property or large equipment.

While there are overlaps in certain cases, knowing which type of business loan is right for your needs is crucial. If you're unsure, consulting a financial professional is always a wise choice.

If you’re interested in learning more about SBA 7(a) loans, here’s a helpful article covering general information and qualification requirements.

How to Qualify for an SBA 504 Loan

Once you’ve determined that the SBA 504 loan is appropriate for your needs, your business will need to meet both general SBA qualifications and SBA 504 loan specific requirements.

General SBA Loan Requirements

These requirements are not loan specific and are required for any SBA loan.

Business Operations: Your business must be for-profit, legally registered, and operating in the U.S. or its territories. Certain types of businesses, such as those primarily involved in gambling or lending activities, are ineligible.

Net Worth: Your business must have a tangible net worth of less than $15 million.

Net Income: Your average net income must be less than $5 million (after federal income taxes) over the two years prior to your application.

Location: Your business must have a physical location in the U.S. and be actively operating or planning to operate.

Investment: You must have a personal financial investment in the business, either in time or capital.

Financing Needs: Before applying for an SBA loan, you must demonstrate that you’ve explored other financing options and clearly outline how you intend to use the loan.

Size: Your business must meet the SBA’s definition of a small business, which is generally based on the number of employees and average annual revenue.

Character: No owner with a 20% or greater stake in the business can be facing criminal charges, be on parole or probation, or have any existing debts with the government.

SBA 504 Loan-Specific Requirements

In addition to the general SBA requirements, there are some key requirements specific to SBA 504 loans.

Real Estate: For real estate purchases, the property must be owner-occupied.

Existing properties: At least 51% of the space must be occupied by the business.

New construction: A minimum of 60% of the space must be owner-occupied.

Leasing: The remaining property space, after meeting the owner-occupied requirement, can be leased to third parties.

Navigating SBA 504 Loans with Crews Bank & Trust

Applying for an SBA 504 loan can be complicated, especially with varying industry requirements. That’s where Crews Bank & Trust comes in. With almost century of experience helping businesses thrive, our financial experts are here to guide you through every step of the SBA loan process. We even have Small Business Loan Experts strategically located to specifically help any small business within Central and Southwest Florida.

Connect with the expert in your area:

If you think an SBA loan might be the right fit for your business, our experts will work with you to find the best option tailored to your needs. Contact them today to learn more about SBA loans and discover how our resources can help your business succeed. We’re here to support you.

Important disclosure: The information provided in this material is intended for educational purposes and is not intended to provide specific advice or recommendations for any individual. While other traditional lenders participate in commercial bridge loans, Crews Bank & Trust does not offer bridge loans, nor do they offer soft and hard money loans. All loans are subject to credit approval. All loans are subject to credit approval