• Understanding the 504 Loan Program

    Community Business Finance wants to be sure that no one misses an opportunity to expand their business just because they do not understand the 504 Loan Program from the SBA. There are three things that business owners commonly misunderstand about 504 loans and how the SBA Loan Program works.

    1. The SBA Does Not Lend Money

    The SBA Guaranteed Loan Program was created to support and strengthen the small businesses that employ our nation. However, is it is important to realize the SBA does not loan money. In a 504 loan, a traditional lender, such as a bank, loans a portion of the money and a CDC (Certified Development Corporation) loans another portion. The SBA then guarantees the CDC portion of the loan, usually 40%. This is similar to being a loan co-signer. This helps lenders feel more comfortable with a loan that they might otherwise not approve, because they have first lien position on the loan.

    2. A 504 Loan Rejection from a Lender Does Not Equal a Rejection from the SBA

    Since the SBA does not loan the actual money, only the lender is rejecting the loan. Every SBA lender is its own entity, and lends differently depending on its own appetite for risk, experience and timing. Some lenders are more flexible than others.
    Therefore, a rejection from one SBA lender doesn't necessarily mean a rejection from all SBA lenders. It is important not to assume the rejection means you did not fulfill the SBA requirements for the loan. Community Business Finance has strong relationships with a variety of lenders and will help you choose a lender that is right for you.

    3. You Still Need Collateral Even Though the SBA Backs the Loan

    Some borrowers think that if the SBA is backing the loan then they should not need to put up collateral. This is not true. Just like any other lender, the SBA wants to be sure that the borrower has a significant commitment to repaying the loan. Before the SBA takes a risk on a business (by guaranteeing 40% of the loan), they want the borrower to share in the risk by offering collateral. Because 504 loans are used to purchase real estate and equipment, often the item being financed is used as collateral on the loan. However, a lender can make a 504 loan without dollar-for-dollar collateral.

    Community Business Finance specializes in all SBA lending programs and has extensive knowledge of all of the lending options that are available to borrowers. As a dynamic resource for the business community, we have an interest in helping your business succeed. Our mission is to help companies in Texas and Louisiana expand with long-term, low down payment, fixed-rate financing.

    For more information on how you can qualify for an SBA loan contact our offices:

    In Texas call Bill Ebersole at 713-457-1650, ext. 201, or email him at bill@communitybusinessfinance.com.

    In Louisiana, call Jeanne Bergeron at 1-800-462-1017 or email her at jeanne@communitybusinessfinance.com.


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