Key benefits of an SBA 504 Loan:
• Low Down Payment - conserves valuable operating capital
• Below-Market Fixed Rates - no future rate fluctuation
• Long-Term Financing - promotes steady business growth
How does the 504 work, and how can IBFS help?
• The 504 is a long-term financing tool that offers fixed-rate financing to acquire major fixed assets for expansion or modernization. 504 loans are backed by a 100% SBA-guaranteed debenture.
• As an SBA-backed lender, IBFS - in partnership with America's Banks - works with qualified businesses to develop, package and process business growth projects. By integrating client, bank resource and SBA financing, IBFS helps businesses expand their operations.
Borrowing Minimums:
• IBFS’ 504 loan project minimum is typically $160,000
Borrowing Limits:
• $5 million for standard projects
• $5.5 million for manufacturers
• $5.5 million for projects fulfilling certain energy efficiency requirements and other specific public policy goals
Typical structure of an SBA 504 loan:
• At least 10% contribution from business owner (equity)• Up to 50%from bank/private sector lender (senior lien)
• Up to 40% from the SBA, via IBFS (junior lien)
Example of Financing on a Typical $1 Million Project or Equipment:
Cost for Project:
| Acquisition of Real Estate and/or Equipment | $800,000 |
| Renovations | $180,000 |
| Soft Costs (i.e. appraisal, Architect fees, closing costs) | $20,000 |
| $1,000,000 |
| Entity | Loan Amount | % of Project | Security |
| Bank/Lender | $500,000 | 50% | 1st Lien |
| IBFS/SBA 504 Loan | $400,000 | 40% | 2nd Lien |
| Borrower down payment | $100,000 | 10% | |
| Total | $1,000,000 | 100% |
Basic Requiremens for 504 Eligibility
• Must be a "small business" by SBA standards• A for-profit business with a net worth less than $8.5 million
• Annual after-tax profit of less than $3 million
• Bank participation
• Project should generate jobs
• Project plans call for the purchase and use of real estate or equipment
• Owner injection of 10-20%
• The business owners must be United States citizens or have permanent resident alien status
• The business owners must be of good character
• There must be clear evidence of the ability of the business to service all projected obligations
• SBA will not provide 100% financing for a new business start-up or change-of-ownership
What kinds of businesses have used the 504 Loan Program?
Since 1981, IBFS has worked with small businesses in all major industries:• Healthcare
• Manufacturing
• Service
• Retail
• Hospitality (hotel/restaurant)
• Construction
• And More
Cick here to read about some of our success stories.
What kinds of businesses cannot use the 504 Loan Program?
• Cooperatives• Pyramid sales organizations
• Insurance companies
• Gaming businesses
• Religious organizations
• Most real estate ventures
• For other restrictions, please contact us at info@ibfs.org
For full details on requirements contact us at info@ibfs.org
What can a 504 be used for?
Proceeds from 504 loans must be used for fixed asset projects, such as:• The purchase of land, including existing buildings
• The purchase of improvements, including grading, street improvements, utilities, parking lots and landscaping
• The construction of new facilities or modernizing, renovating or converting existing facilities
• The purchase of long-term machinery and equipment
• New refinancing options (see below)
The 504 Program cannot be used for working capital or inventory, consolidating or repaying debt, or refinancing.
Examples of eligible usage for the 504 loan:
• Real Estate Acquisition, Improvements, Closing Costs• Purchase of Existing Buildings and Improvements
o Business must occupy at least 51%
• Construction of a New Building
o Business must occupy 60% initially and occupy 80% within 10 years
• Purchase of Machinery & Equipment
o Useful life greater than 10 years
• Debt Under Qualified Circumstances
• Costs and fees associated with the eligible project
What can the 504 loan not be used for?
• Illegal Activities• Floor plan financing*
• Real Estate speculation / rental real estate / spec homes**
• Financial speculation
• Business dealing with anything of a sexual nature
• Patronage restriction such as male only or female only
• Assisting in the relocation of a business that will result in serious unemployment or result in the nullification of a contract
• Gambling
• Financing operations outside of the United States
• Political activities
• Individuals who have failed to meet government obligations
• Replacing funds which were disbursed to associates
• Delinquent funds held in trust
• Participating lenders who provide themselves with a preference over the SBA making, servicing or liquidation of a business loan
*May be done under the floor plan initiative
**May be done under the CAP Line loan program
For more information on usage requirements contact us at info@ibfs.org
The IBFS Process
• We will connect you with one of our IBFS Business Development Executives to start the screening process - to see if you qualify and how we can work with a partner bank on your project – email us at info@ibfs.org and we will get you in touch with one• Our staff will work with you to gather and complete the loan checklist process
• Loan Packaging and approval by loan committee and the SBA
• Loan closing process
Read about some of our success stories here.
