SBA 504 Loans for Beginners
If you are considering SBA loans for your small business, it’s important to understand the uses they are designed for and the limitations the program places on borrowers. For beginners, these rules and exclusions can be a little difficult to parse, but it helps to understand why the program exists and what these limitations are meant to do for businesses.
For starters, the Small Business Administration runs the loan program with the expressed purpose of helping businesses grow in ways that improve the economic health of communities. Its mandate includes providing guaranteed loans that allow companies to access the basic resources they need to grow. As a result, the 504 loan program is built to allow for the purchase of equipment and facilities, and under certain circumstances it can be used to finance the acquisition of an existing business.
As a result of this mandate, applicants for SBA loans are asked to show not only that they have a sound business plan that will lead to loan repayment, but also that their plan involves the creation of full-time employment opportunities in their communities and other economic benefits. The mandate also limits the use of funds, making it impossible to get 504 loans for purposes like inventory restocking and debt consolidation.
When deciding on eligibility, the economic impact of the company’s business plan is weighed against the amount being borrowed, credit history of the business, and size of the company and its finances. Since these loans are designed for small businesses, applicants for SBA loans have to be beneath a certain size. That definition includes provisions like a maximum income and maximum cash reserves for an applicant.
If your company does not qualify for the 504 loan program, it does not mean you are a bad risk for a loan. In fact, if the reason you can not qualify is because your company’s income is too high, then you can probably find lenders who will work with you without the program. If you need to access lending for purposes not covered by the program, there are also other options available.
SBA loans are a great tool for companies that use them at the right moment to create a low overhead solution for real estate purchases and equipment investment, but they can take some time to get approved. One way to speed up that process for your business is to work with preferred lenders, who can approve their own loan packages. This lets you apply with a number of them to see who will grant your approval fastest, increasing your overall odds of a yes.