How to Qualify for an SBA 504 Loan

You may or may not qualify for a 504 loan based on where you apply. Different banks have different credit qualification requirements, among other factors required for approval. Your bank will have more specific information for you, but we've compiled some common answers to help address some of your questions.

What is an SBA 504 Loan and How Does it Work?

An SBA 504 loan consists of two parts: one loan is provided by a bank, and a second loan is provided by the Small Business Administration through a Certified Development Corporation (CDC). The 504 loan is used solely for the purchase or refinance of owner-occupied real estate or large equipment. This can include major capital investments, such as building a new facility, purchasing or modifying an existing structure, and investing in machinery and equipment, among other things.

Similar to the 7(a) loan, specific credit qualifications vary from bank to bank and depend on several factors. The loan has three basic parts—you can provide as little as 10% equity (down payment), 50% is provided by the bank, and the remaining 40% is provided by a CDC backed by an SBA guarantee. There is a limit to the portion that the SBA backs, but there is no limit to the total project cost if you meet the eligibility criteria. Loans range from $250,000 to $15 million, with terms from 10 to 25 years, depending on the loan purpose, with a fixed interest rate.

What Are SBA 504 Loan Requirements?

Requirements vary from bank to bank, but there are some qualifications that you must meet regardless of where you apply.

• Operate a for-profit business in the U.S.
• Have a tangible net worth of less than $20 million
• Demonstrated management experience (you can run a business successfully)
• Be able to meet down payment requirements
• Over the last two years before you apply, have an average net income of less than $6.5 million after federal income taxes
• Sufficient collateral for the loan (usually what you're buying with funds from the loan)
• Ability to repay the loan from business revenues
• Have a plan in place to use the funding for approved purposes
• You are unable to get approved for a loan with reasonable terms
• No delinquencies on government loans, including federal student loans

The SBA will also evaluate your management experience, the feasibility of your business plan, and how the loan will help grow your business and, in turn, create new jobs or retain current ones.

How Much Do You Have to Put Down on an SBA 504 Loan?

The SBA requires a minimum of 10% equity, or down payment, on all 504 loan applications. The SBA adds 5% additional equity for any requests involving a startup business or a special purpose property, like a bowling alley or hotel. This means the actual amount will vary depending on the amount of the loan you're applying for.

What Are SBA 504 Loan Terms and Why Choose an SBA 504 Loan?

The 504 loan offers several benefits over other options. Consider the following:

• Offers a fixed rate that's highly competitive
• Low down payment
• Access to SBA resources and guidance
• Repayment term of up to 25 years
• Predictable, long-term financing to help improve your cash flow
• You have time to go through the application process, which can take on average 30-90 days
• Ability to include closing costs and other fees, like permits, into the loan

How Do I Apply for an SBA 504 Loan?

Speak with a WaFd Business Banker to discuss your project and start the process to apply.

WaFd Bank is Here to Help

Our knowledgeable business bankers are available to help you manage success and have the expertise to become a trusted advisor to you and your team. With products that grow with your business and comprehensive tools to seamlessly manage it all, WaFd Bank is built for business. After over 100 years, we know what it takes to help you succeed, from start to legacy. Visit your local branch or give us a call at 800-324-9375 to experience the difference WaFd Bank can make for you.

Loans subject to credit approval, terms and conditions may apply.