Bill Rinaldi Talks 504 Loans

Understanding the benefits of an SBA 504 loan is the first step to determining whether it is the right type of financing for your business. Here, Bill Rinaldi, President of the Northeastern Economic Developlment Company of PA-CDC, explains the best uses for the 504 loan in a recent interview:

Interviewer:

What is an SBA 504 Loan and what are some of the most common benefits?

Bill Rinaldi:

For many small business owners, an SBA loan can provide the funds needed to fulfill a variety of needs like buying equipment or real estate. A 504 loan can also be used to make improvements or renovations to existing business facilities.

One of the most important benefits that 504 loans offer is that they typically require only a 10% down payment in many cases, while traditional commercial loans require a 20-30% down payment. Another major benefit is the low interest rate, which normally falls in the range of 3-4%. The long repayment terms of a 504 loan are also attractive, which can be 20 years for real estate and 10 years for equipment, as opposed to the 5-10 repayment period for most traditional commercial loans. Lastly, 504’s typically don’t require additional collateral because the real estate or equipment be financed acts as the collateral for the loan.

Interviewer:

How can a small business owner qualify for a 504 Loan?

Bill Rinaldi:

Qualifying for a 504 loan is somewhat similar to qualifying for a traditional bank loan, with only a few unique requirements. It is important to have strong credit and have the ability to make the necessary down payment. It is also better if you don’t have a significant amount of additional outstanding debt. In order to qualify as a 504, the loan must be used to buy an existing building which needs to be at least 51% owner occupied or a new building that is at least 60% owner occupied. If buying equipment, it must have at least a 10 year economic life. The business itself must also have an average net income less than $5 million after taxes for the last two years and a tangible net worth less than $15 million. The borrower must also be able to demonstrate how the loan will help to create new jobs in the community or enhance public policy goals in some way.

Interviewer:

How is a 504 loan structured and who are the parties that are involved?

Bill Rinaldi:

There are actually three parties involved in funding a 504 loan: the bank, the certified development company, and the small business owner. The bank is typically responsible for making 50% of the loan amount borrower, while the CDC is responsible for the SBA-guaranteed portion of the loan which is 40%. This leaves the last 10% for the small business owner which is normally covered by the down payment.

Interviewer:

Is applying for a 504 loan complicated?

Bill Rinaldi:

As I previously mentioned, the process of applying and qualifying for a 504 loan is very similar to that of a traditional commercial bank loan, however the long repayment terms, low down payment and low interest rate should make the 504 loan one of the first types of financing a small business owner should consider. The experts at NEDCO are here to assist small businesses through every step of the process, and ready to help business owners achieve their goals by securing 504 financing.

To find out more info Bill Rinaldi, 504 loans or to talk to an expert at NEDCO, contact us today.