A common misconception about the SBA 504 loan program is that it only works for startup businesses — or only for long-established businesses.
In reality, SBA 504 can be a powerful financing tool for both.
Existing Businesses
For existing businesses, SBA 504 financing can allow the borrower to get into a project with as little as 10% equity injection.
Eligible SBA 504 project costs can include:
- Commercial real estate purchases
- Construction costs
- Machinery and equipment
- Certain refinance projects involving existing fixed asset debt
Startup Businesses
For startup businesses, or businesses considered “new” under SBA guidelines, the minimum equity injection is 15%. This can include businesses that have been operating for less than two years, as well as certain change of ownership projects involving new ownership and increased debt.
The SBA 504 structure can also work well for startup business acquisitions because it allows the borrower and partner lender to utilize other financing sources for non-504 eligible project costs, such as working capital, inventory, and blue sky/goodwill.
Why Lenders Like the SBA 504 Structure
One of the biggest advantages of the SBA 504 loan program is the structure for the lending partner.
In a typical SBA 504 project:
- Our partner lender is in a 1st lien position
- Our partner lender is often lending 50% of the total project costs
- The structure can help lenders say YES to more projects while helping small businesses grow
At Ally Dakota Development, we work alongside our lending partners to help structure projects, navigate SBA requirements, and get deals across the finish line.
If you have a project that may be a fit for SBA 504, we’d be happy to discuss it with you.