There are several ways to fund different entrepreneurial expenses. Small business administration loans, also known as SBA, have gained popularity among many investors in today’s corporate world. SBA 504 loans fall under this category, and many businesses have leveraged this funding to keep their operations afloat. Unfortunately, not all entrepreneurs understand how these loans work. This article will explain this financing type in detail to give you a clear image of what it entails.

How are SBA 504 Loans Structured?

The structure for this funding type differs significantly from other SBA loans. In most cases, this loan structure follows a 50-40-10 model divided among its three primary players. The three are the bank loan accounting for 50% of the total amount, a Certified Development Company accounting for 40%, and the borrower who makes a 10% down payment.

Nonetheless, this model isn’t standard for all businesses. You should know about some exceptions, especially regarding new businesses and special purpose properties. If your company is new and has been operational for less than two years, you must make a 15% down payment. This changes the structure to 50-35-15. You’ll have to make a 20% down payment if your business is both new and a special purpose property, changing the structured model to 50-20-30.

Understanding a Certified Development Company (CDC)

CDCs are non-profitable organizations with SBA approval and regulation whose main aim is to sponsor the economy in their local communities. These corporations are best suited to fostering their communities’ economy, considering they understand the area and residents’ needs and challenges. Statistics show that there are about 260 CDC centers spread out throughout the country.

This means all regions are well represented. These offices are certified to offer and service SBA 504 loans. Additionally, Certified Development Companies liaise with different lenders to ensure they fund small businesses to help foster their growth and development, leading to an improved local economy.

Qualification Requirements for SBA 504 Loans

Below are summarized points indicating the requirements you must fulfill to qualify for this financing:

• A US-based for-profit business – your company must be operating in one of the regions in the U.S.
• You must have a net income amounting to less than $5 million for two consecutive years before applying for the loan.
• A net worth lower than $15 million.

Proper business financing starts by knowing your options and how to go about them. The above details explain everything crucial about SBA 504 loans to help you grasp the idea. Feel free to contact KMS Funding for all the financial services and support you need in your business.