The true bottom line of an expansion project, no matter the size, is far more than just the cost for foundation and bricks.  Let’s face it, soft costs can constitute a big portion of expansion costs.   And most conventional bank loans only finance a percentage of the purchase price/appraised value, leaving borrowers to pay for soft costs and closing costs out of their own pocket.

There is another way.

SBA 504 Loan Program

The SBA 504 Loan Program finances total project costs.  Total project costs includes not just the costs for land and existing building, hard construction and equipment, but also soft costs such as:


Furniture and Fixtures

  • Lighting
  • Office furniture
  • Partitions
  • Shelving units
  • Menu boards

Leasehold Improvements

  • HVAC, Flooring, Electrical, Plumbing
  • Landscaping
  • Parking Lots

Other Costs

  • Appraisals
  • Attorney fees
  • Building permits
  • Environmental reviews
  • Design/Architectural fees
  • Inspections
  • Interim interest


  • X-Ray/Digital imaging machines
  • Telephone and computer systems
  • Fitness equipment
  • Forklifts
  • Alarm systems


Project Scenario

A fast-food retail business sought financing to purchase and renovate an existing building in order to open a new fast food chain restaurant.  This project involved a lot of soft costs in order to build-out the restaurant according to franchise standards, but the borrower needed to maintain as much working capital as possible to keep operations running smoothly at all the other restaurants.

The bank recommended the 504 Loan Program because it finances total project costs and has low down payment requirements.  Plus, any money the borrower had already invested in the new restaurant could be counted as equity in the property, thereby preserving working capital even more.    Soft costs financed into this project included:  walk-in coolers, shelving, lockers, commercial grade appliances, menu boards, point of sale systems, signage, dispensers, booths, alarm systems, awnings, building permits, engineering fees, etc.

Land & Building $500,000
Improvements $325,000
Equipment $475,000
Other Costs $25,000
Total $1,325,000

If a bank was willing to finance the project conventionally, it would typically lend up to 80% of the project costs at a floating interest rate with a 15 year amortization and a balloon after three to five years.  However, utilizing the 504 Loan Program, up to 90% of the project costs can be financed.  The bank lends up to 50%, thereby reducing its risk and corresponding interest rate.  Growth Corp lends up to 40% at a fixed rate for 20 years, with a down payment of only 10% from the borrower.
Conventional With 504
Bank $1,060,000 $662,500
Growth Corp $0 $530,000
Borrower $265,000 $132,500
Total $1,325,000 $1,325,000

As shown, the borrower’s equity injection can be cut in half, thereby conserving cash and providing the necessary working capital to support continued growth.  Additionally, cash flow is improved as a result of the longer maturity and potentially lower interest rates.

Typical 504 Financing Structure

 Project Costs Source Lien Funding Limits Rate Term Real Estate Term Equipment
50% Financial Institution 1st No limit Market 10 years or longer 7 years or longer
40% Growth Corp 504 2nd $5 to $5.5 million Fixed 20 years 10 years
10% Applicant/Borrower