About the 504

About the 504

For a growing business, the next step is often acquiring a facility or additional long-term equipment, but the down payment required for conventional bank financing may make expansion difficult.

For business owners concerned about stabilizing occupancy costs, taking advantage of the benefits of owning versus leasing, and conserving working capital for operations, the 504 Loan Program could be the solution. The 504 allows a small to medium sized business to finance a facility or long-term equipment at favorable rates and terms.

Consider these key advantages of the 504 loan over traditional business loans:

  1. Lower down payment – typically, the business contributes 10% towards the project costs and borrows up to 90% preserving cash for operations
  2. Longer repayment terms – traditional real estate loans typically balloon in 3 to 5 years while the 504 loan provides a 20 year fully amortizing term (the bank partner must provide a 10 year term)
  3. Below market interest rate fixed for the 20 year term of the 504 loan; with a lower risk, the bank can often provide more competitive terms on their 50% portion.
  4. Soft costs are included – with traditional financing, soft costs (design, appraisal, environmental, closing costs) are funded by the business. With a 504 loan, they are included in the project further limiting cash into the project by the business
  5. Loan to Cost vs. Loan to Value – conventional lenders focus on lending a percentage of the appraised value (typically 80%) while the 504 loan focuses on the project costs and can lend up to 100% of the appraised value.
  6. Refinancing – temporarily, existing conventional real estate mortgages can be refinanced with a 504 loan. Click here for the FAQ.