About SBA 504 Loans

SBA loans for faciltiesThe SBA REAL (Real Estate Advantage Loan /504) Program is a long-term financing tool for economic development within a community.

The Real Estate Advantage Loan (REAL/504) Program provides growing businesses with long-term, fixed-rate financing for major fixed assets, such as land and buildings. A Certified Development Company is a nonprofit corporation set up to contribute to the economic development of its community. CDCs work with the SBA and private-sector lenders to provide financing to small businesses. Louisiana Capital CDC, Inc. is your #1 CDC for Louisiana.

Typically, an SBA REAL/504 project includes a loan secured with a senior lien from a private-sector lender covering up to 50 percent of the project cost, a loan secured with a junior lien from the CDC (backed by a 100 percent SBA-guaranteed debenture) covering up to 40 percent of the cost, and a contribution of at least 10 percent equity from the small business being helped.

What Funds May Be Used For:

Proceeds from REAL/504 loans must be used for fixed asset projects such as: purchasing land and improvements, including existing buildings, grading, street improvements, utilities, parking lots and landscaping; construction of new facilities, or modernizing, renovating or converting existing facilities; or purchasing long-term machinery and equipment. The REAL/504 Program cannot be used for working capital or inventory, consolidating or repaying debt, or refinancing. You can view a sample use of 504 loan proceeds under the 504 Loan Lenders section, and examples of 504 loan projects under our Borrowers section.

Terms, Interest Rates and Fees:

Interest rates on REAL/504 loans are pegged to an increment above the current market rate for five-year and 10-year U.S. Treasury issues. Maturities of 10 and 20 years are available. Fees total approximately three (3) percent of the debenture and may be financed with the loan.

Collateral:

Generally, the project assets being financed are used as collateral. Personal guaranties of the principal owners are also required.

Eligible Businesses:

To be eligible for the SBA 504 loan program, the business must be operated for profit and fall within the size standards set by the SBA. Under the REAL/504 Program, the business qualifies as small if it does not have a tangible net worth in excess of $15 million and does not have an average net income in excess of $5 million after taxes for the preceding two years. Loans cannot be made to businesses engaged in speculation or investment in rental real estate.


   

 

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