The 504 Loan Program provides businesses with financing for major fixed assets such as office buildings, retail buildings, warehouse facilities, machinery and equipment.
504 Loans are financed through a unique public/private partnership that involves your business, Community Business Finance, and typically a bank or other private sector lender. In the 504 Loan structure, your business puts up a minimum of 10% of the total funds for a project.
Community Business Finance provides up to 40% or $5 million ($5.5 million in certain circumstances), whichever is less. The private sector lender provides the balance of the financing. The Community Business Finance portion of the loan is at a fixed rate for a term of 10 or 20 years. The bank portion of the loan is at market rates and terms, negotiated between your small business and the bank.
The Community Business Finance portion of the financing is funded by the sale of a 100% federally-guaranteed debenture on the open market. The 504 Loan Program is a take-out financing program. Community Business Finance offers an up-front commitment to finance a project, and the participating private lender provides interim financing, advancing up to 90% of the total project funds during the construction/acquisition period. After the project is complete, proceeds from the debenture sale reimburses or "takes out" the participating private lender (by the net debenture amount of the original SBA authorization).
The 504 Loan Program was established by Congress in 1987 to promote economic development in the CDC's trade area. The program goals are met primarily through projects that create job growth or job retention in local communities. By distributing the amount needed to finance the project between the three parties, banks take less risk and are more likely to approve the loan.