Use of Proceeds
Your business must be for profit to qualify for a SBA 504 loan. SBA 504 loan proceeds can be used for the following purposes:
- Acquisition and/or improvements of owner occupied commercial real estate
- Leasehold Improvements for owner occupied space (no tenant improvements)
- Acquisition of Machinery and Equipment
Loan proceeds may also be used towards the payment of professional fees directly tied to the loan request (i.e. architectural fees incurred for drawings of a proposed building), and some other administrative costs.
Ineligible project costs:
- Incorporation and organizational expenses
- Management or counseling fees
- Finders fees/broker fees
- Origination and commitment fees
- Working Capital
- Intangible Assets (Goodwill, Covenant Not to Compete)
- Furniture and equipment (with life less than 10 years)
- Inventory purchases
- Franchise fees
SBA 504 Loan Terms
An SBA 504 loan has a term of either 10, 20, 25 years. The proceeds determine the length of the loan.
- Machinery and equipment purchases or leasehold improvements: 10 years.
- Land purchase, construction, and/or purchasing an existing building: 20 or 25 years.
SBA 504 Structure
Typically, the SBA 504 loan requires only a 10% injection into the project. Under the 504 loan product, two loans are issued. One is the loan from the lender, and the SBA (through 6 Bridges Capital) issues a separate loan. The structure for the 504 product, as a percentage of total project costs, is typically as follows:
- 50% Lender’s loan
- 40% 6 Bridges Capital Corporation/SBA 504 Debenture note
- 10% Capital injection
(Note: ineligible project costs are considered separate from total project costs. Therefore, your total injection could be more than 10%.
Additional down payment may be required for a new business or a single purpose property.
Example: a startup business that will use a single-purpose building such as a gasoline station would require a 20% capital injection.