To better understand capital, and its role in the 504 Loan Program, we must first explore the relationship between risk and return. This relationship is a fundamental idea in finance. Investors risk their money when buying stocks, on the chance of a reward in dividends. Lenders take a risk when loaning money to a business. The return on their risk is the interest paid on the loan.
There are many aspects of business that create a company's success, such as a solid business plan and available lines of credit. However, when determining the financial health of a business, cash is king! We've all heard the phrase "cash is king" but what does it really mean when you are applying for a 504 loan?
In his play Romeo and Juliet, Shakespeare asks the question, "What's in a name?" When you need business financing, such as a 504 Loan, it turns out your name is worth a great deal. Lenders decide if you are a good risk by assessing your credit. Although every lending situation is different, most lenders use the Five Cs of Credit to determine the level of risk.
We here at Community Business Finance love helping our clients achieve their business dreams. We celebrate each loan as the first step in another success story. It turns out we aren't the only ones singing the praises of the 504 Loan Program. There is an excellent article from CBS MoneyWatch that shines a light on how powerful a 504 loan can be.
When you think of government agencies, such as the SBA, you probably imagine mountains of paperwork. In fact, many lenders actively avoid promoting 504 loans from fear of endless forms. You should know that the SBA has taken great strides in reducing the number of forms needed to apply for a loan.
Justice Oliver Wendell Holmes, Jr. reportedly said, "I like to pay taxes. With them I buy civilization." Civilization is not the only benefit of paying taxes. The most successful businesses in America are the ones that accurately report their income and faithfully pay their taxes. In fact, accuracy is crucial to the success of a business. It is also crucial when securing a business loan, such as Community Business Finance's 504 Loan Program.
Just like the myths that 504 loans have too much paperwork and take too long to process, you have probably heard that 504 loans have too many fees. This myth most likely originated from the 7(a) program's tiered fee structure and has been applied to all SBA loan programs. Let's examine the facts about 504 loan fees.
There is a prevailing myth that an SBA 504 loan takes too long to prepare and process. While it is true that in the past the SBA was bogged down with laborious paperwork and sluggish processes, many things have changed. The SBA has worked intently to speed up their processing times and reduce their paperwork. The agency has invested in the technology to become more efficient and responsive. They really do want to make it easier to provide borrowers with the capital they need to promote economic growth.
Have you ever wondered why only Certified Development Corporations (CDCs) can offer the 504 Loan Program? The 504 Loan Program was created to help small businesses get the financing they need to promote job creation and retention. The Small Business Administration established the Certified Development Corporation Program to finance these loans, since the SBA does not loan money directly.
As you have probably heard by now, interest rates are on the rise. As debenture rates rise, the interest rates on SBA loans also rise. For businesses seeking property or equipment loans, finding the lowest interest rate seems like the best move. However, bear in mind that the interest rate is only one aspect of your loan contract. Therefore, the loan with the lowest interest rate might not actually be the best loan for your business.
