SBA 504 Loans & Small Business Financing

In 1981, the U.S. Small Business Administration (SBA) launched the SBA 504 Loan Program to help small businesses reach their full employment potential. It is a fast-growing, flexible business finance program. SBA 504 loans are designed to help businesses build or improve their fixed assets - mainly real estate and equipment. The terms of the SBA 504 loan are 20 years for real estate and 10 years for equipment. CEI is licensed as a Certified Borrower by the SBA to administer the SBA 504 Loan Program in Maine, and is the largest CDC based in Maine.

The SBA 504 Loan program is an ideal way of financing properties and equipment with a lower down payment than many banks offer. Businesses are also able to lock in their financing at a fixed rate for 10 or 20 years.

How Does the SBA 504 Program Work?

Typically, a 504 project includes a loan secured with a senior lien from a private sector lender (usually a bank) covering 50% of the project cost, a loan secured by a junior lien from a CDC (CEI) covering up to 40% of the cost, and a contribution of at least 10% equity from the business. In some cases, CEI may finance a portion of the borrower’s equity with a subordinated loan.

SBA 504 Public Policy Goals

• Business district revitalization
• Expansion of exports
• Expansion of minority business development
• Rural development
• Increasing productivity & competitiveness
• Restructuring due to federally mandated standards or policies
• Changes necessitated by federal budget cutbacks
• Expansion of small businesses owned and controlled
  by veterans
• Expansion of small businesses owned and controlled
  by women
• Reduce energy consumption by at least 10%
• Use of sustainable design (LEED standards)
• Production of renewable energy, micropower, or renewable fuels including biodiesel or ethanol

Who Can Apply?

Almost all for-profit corporations, partnerships, proprietorships or LLCs are eligible to apply. Businesses must have a tangible net worth below $15 million and average net income of less than $5 million after taxes for the preceding two years. Non-profits, gaming businesses and concerns involving rental real estate speculation are ineligible.

Eligible Uses of SBA 504 Loans

• Real estate acquisition
• Building construction or purchase
• Modernization or renovation of an existing facility
• Purchase and installation of machinery and equipment (must have a useful life of 10 years or more)
• Fixed asset debt refinancing, in some cases

Ineligible Uses

• Working capital
• Rolling stock
• Inventory

Loan Sizes, Terms and Rates

• Up to $5 million depending on the type of project (up to $5.5 million for eligible manufacturing projects that incorporate energy savings technologies for sustainable design)
• 10 or 20 years terms, rate fixed for the loan term
• Interest rates on the CEI/SBA debenture are pegged to five and ten year US Treasury issues and are determined monthly. Market rates apply to the private lending portion.

Other Conditions

Prepayment penalties apply during the first half of the loan term.

Leverage

• Bank participation 50%
• Owner equity 10% minimum

Collateral

• Project assets
• Personal guarantees

Fees

• Determined by the size of the debenture
• Most fees are financed with the loan

CEI's experienced development staff help applicants obtain funds by reviewing program guidelines; packaging applications and reducing paperwork; and assisting in negotiations with other lenders ensuring quick turn-around.  Check here for other business loan options.

To speak with a loan officer, please call 207-882-7552 or email us.