The U.S. Small Business Administration (SBA) facilitates small-business access to funding through various loan programs. Its 504 program, also known as the Certified Development Companies (CDCs) program, created in 1986, is one of the best options available to small-business owners looking for long-term financing to acquire and improve major fixed assets, such as commercial real estate, large equipment for use in business operations, land and other fixed assets. It can also be used for debt refinancing in connection with an expansion of the business through new or renovated facilities or equipment. The main benefits of the SBA 504 are basically i.) low rates as low as ~5%; ii.) rates are fixed, which avoids the risk of future rate hikes; iii.) relatively low equity down payment; and iv.) long loan terms. The 2010 Jumpstart Our Business Startups (“JOBS”) Act had already improved the 504 Program by enabling some small businesses to refinance their commercial real estate mortgages with a 504 loan and by increasing the cap of the CDC financing portion to US$5.5 MM from US$ 2MM. Now, it has become even more affordable and popular following the SBA’s decision on April 2018 to extend its payment cycle, which was traditionally offered on 10-year and 20-year terms, by adding a 25-year term loan. In response to rising small-businesses’ operating expenses and interest rates, the SBA’s new loan is instrumental in helping small businesses better manage cash flow by allowing them to spread out payments across a 25-year term. With the other benefits of the loan unchanged, this new instrument is without a doubt a win-win for small businesses as it complements the existent 10-year and 20-year 504 loans and it also brings 504 loans more in line with traditional non-SBA commercial mortgages, which usually have 25-year terms. These loans typically involve three entities: i.) CDCs, which are nonprofit community-based partners of the SBA that focus on economic development; ii.) banks or private lenders; and iii.) the borrower.
The SBA 504 Loan Program has funded projects worth hundreds of thousands of dollars by all kinds of small businesses in Florida and in return millions of dollars were pumped into the local economy by generating jobs and promoting modernization. There have been 23 CDCs actively taking part in the program and lenders comprise big banks, such as Wells Fargo, JP Morgan, HSBC, Citibank and TD Bank, as well as smaller banks, such as Sunstate Bank, Banco do Brasil Americas, Zions Bank, Morris Bank and Regions Bank.
The 2010 JOBS Act amplified access to cheap 504 funding and now the recently created 25-year term extended the payment cycle by 60 months. This instrument can clearly help small businesses decrease their monthly payments while financing their projects. With so many benefits offered to projects approved under the SBA 504 Loan Program, applying for this program is a serious task in which Ki Solutions can help its clients, regardless of their creditworthiness, improve their chances of qualifying for. We can help our clients craft a convincing custom-made business plan that serves the purpose of maximizing the project's chances of getting approved for the 504, highlighting its economic potential of creating and retaining jobs within the local ecosystem for every dollar amount in SBA funding. Ki Solutions can also analyze the feasibility of your expansion projects and, if it doesn't qualify for the 504, look for alternative sources of funding to prepare your business for future expansion projects.