If you’re a small business located in a rural community, you should be aware of an SBA loan program created specifically to help you grow and expand.
The SBA 504 Loan Program, an economic development tool designed to help businesses in rural communities, provides long-term, fixed-rate financing to assist small businesses with acquiring land, buildings, machinery and equipment. The loans are administered by local banks in conjunction with Certified Development Companies (such as Growth Corp).
Why are SBA 504 Loans Considered Development Loans?
The purpose of SBA 504 loans is to improve the economy of a local area or to assist businesses owned by women, minorities, veterans, rural businesses, and other designated types of businesses. The SBA 504 Loan Program provides small companies in development areas with guarantees for loans for the purchase of major fixed assets, including real estate and equipment. Because 504 Loans are an economic development program, to qualify you must meet either job creation, community development or public policy goals. In exchange for attractive long-term, fixed-rate financing, SBA expects that its small business loan recipients will continue growing and expanding, thereby creating/retaining jobs and benefiting the surrounding communities. Other benefits include:
- the ability to finance a variety of projects, from startup businesses to businesses that need facilities and equipment to expand
- greater access to capital, which allows for population retention and additional investments in the local economies
- economic advancement, as the impacts of new or growing businesses are often much more visible in rural communities
- the fulfillment of often unmet needs for rural communities, many of which are well-suited for the industries predicted to grow in the coming years
Examples of Businesses Essential to Rural Communities:
- Health Care: Hospitals, Medical Offices, Urgent Care centers or similar businesses
- Senior Care: Nursing Homes, Assisted Living or similar businesses
- Community Facilities: Schools, Infrastructure, Water and Waste, Funeral Homes, Power Generation, Telecommunications or similar businesses
- Agriculture Production: Vineyards, Beef Cattle Ranching/Farming, Dairy, Poultry, Timber Tracts, Vegetable/Fruit or similar businesses
- Manufacturing: Food Manufacturing, Flour Milling, Industrial Manufacturing, Soybean Processing or similar businesses
- Production and Distribution: Wholesalers, Poultry/Meat/Seafood Processing, Breweries, Wineries, Distilleries, Fertilizers/Chemicals Manufacturing, Transportation/Freight Companies, Food Packaging or similar businesses
- Retail and Service: Grocery Stores, Mini warehouses, Bakeries, Farmer’s Markets, Day Care Centers, Auto Repair, Machinery and Equipment Dealers, Health Clubs, Professional Services or similar businesses
Is My Business Eligible for a 504 Loan?
SBA loans are only for small businesses, as defined by the SBA as businesses having a “tangible net worth less than $15 million and an average net income less than $5.0 million after taxes for the preceding two years.” SBA also looks at the activities of the business and its owners. However, most types of for-profit small businesses are eligible for SBA financing. Ineligible companies include non-profits, lenders and businesses involved in lending or speculative activities.
- Businesses owned by women, minorities, rural businesses and other specific types of businesses
- Businesses that have been designated as in development areas and who are working with Certified Development Companies (CDCs)
What is a Certified Development Company (CDC)?
A Certified Development Company (CDC) is a nonprofit corporation set up to contribute to the economic development of its community. CDCs work with the SBA and local lenders to provide financing to small businesses. There are about 270 CDCs nationwide, with each covering a specific geographic area. You can find a Certified Development Company in your area by using this web page and entering your location.
What Can I Use 504 Loans for?
SBA 504 loans can be used to:
- Buy an existing building,
- Construct a new facility or modernize, renovate or convert an existing facility,
- Buy land and improve it,
- Buy long-term machinery, or
- Refinance debt related to expanding a business or renovating facilities or equipment
What is a Typical 504 Loan Process?
Purchasing commercial real estate is a very big step, and for many it’s a once-in-a-lifetime occurrence. That’s why we work so hard to make our process as simple as possible. Growth Corp’s 504 Loan Process involves four phases. This simplified process begins with the first phase of analyzing limited financial information about the business, borrower and project. Phase two involves submitting a complete application for financing. The basic application materials are no different than what a bank typically requires. The first two phases are generally completed within 10 business days. Phase three is the interim funding process, which generally occurs after SBA approves the project and issues a commitment for the 504 loan, with the funds being provided by the participating lender. Phase four completes the transaction with funds provided by Growth Corp through the sale of bonds after the project is complete.
The rural areas of our country are critical to the nation’s economy. The small businesses located in these communities are often catalysts for growth. Asset- and wealth-building through home ownership, business ownership and enhanced education helps build sustainable communities.
Contact Growth Corp to learn more about the 504 Loan Program. We are a mission-based Certified Development Company with over 25 years of experience in helping businesses access the capital they need to grow.