Small businesses deserve some special recognition for helping our communities thrive. Not only are they run by courageous entrepreneurs working tirelessly, but they are also the sponsors of little league teams, the community fundraising donors and the employers of our friends and family. Small businesses are the local coffee shops that greet you by name each morning, the jewelers who help make engagements and anniversaries extra special and the restaurants where the crowd goes after a football game.
And…I think most small business owners would agree…running a business is not about getting rich. It’s about doing what you love, putting food on the table, working hard and giving back.
So How Is The Lending Industry Helping Small Businesses Succeed?
Small business owners need financial support in order to invest in their business and expand in an affordable way. Whether you’re a seasoned company or just someone that hopes to start a business someday, there are lending programs designed specifically for you.
For instance, the SBA 504 Loan Program (504) was created by the U.S. Small Business Administration (SBA) to provide small businesses with long-term, fixed-rate financing to expand or buy their own facility. With a 504 loan, a small business owner can expect:
- 90% financing
- Fixed interest rates, currently between 4 and 5 percent
- No balloon payments
The SBA provides these loans via community-based nonprofit lenders, called Certified Development Companies (CDC’s). These CDC’s are regulated by SBA and work in partnership with participating lenders, such as First State Bank, to provide financing to small businesses.
SBA 504 Loans typically covers 90% of the total project costs, as opposed to 80% with most conventional loans. The usual breakdown of funds with the 504 is: 50% from a bank or private lender; 40% from the SBA; and 10% equity from the borrower. The portion of the loan funded by the 504 is some of the least expensive financing available to businesses. In addition, the 504 rate is locked in for up to 20 years.
The 504 Loan Program is the best option for borrowers who need to make capital improvements, expand an existing facility, or purchase a new piece of equipment.
Borrowers reduce their equity injection to as little as 10% at the outset, which slashes the bank portion to only 50% of the project costs. As a result, the 504 is a win-win for both lenders and borrowers. Most noteworthy, thousands of small business owners across the country are using the 504 to realize their dreams of growth and expansion.
A Stalled Business Expansion Got Back on Track…
For instance, a wholesale bakery, nearing the end of its lease, received news their business property was being sold and needed vacated. Facing an inevitable move, the business owner decided to make the most of the situation and began to seek a property that would not only house the business, but would also allow for expanded production.
Nearby land was purchased and construction of a larger building began. However, due to cost overruns, conventional financing could no longer allow for the completion of the construction as the borrower required a higher advance rate than the bank could offer. Exploring alternative options in hopes of getting the expansion back on track, the lender introduced the borrower to the 504 Loan Program and they found it to be the perfect solution.
The participation of the 504 Loan Program allowed the bank to offer a 90% advance, which gave the business the financing they needed to pay contractors and finish the project. The new location offers ample space to produce, distribute and sell an expanded line of bakery items.
The Impact on Small Business Success
Growth Corp focuses exclusively on 504 Loans because we see the impact they have on small business success. Furthermore, because the 504 promotes economic development while simultaneously providing numerous benefits to banks and business owners, it is a program perfectly designed to fuel the small business sector.