504 Loans

About 504 Loans

The 504 Loan Program provides growing businesses with long-term, fixed-rate financing for major fixed assets, such as land, buildings and large equipment.

Typically, a 504 project includes a loan secured with a senior lien from a private-sector lender covering up to 50% of the project cost, a loan secured with a junior lien from the CDC (backed by a 100% SBA-guaranteed debenture) covering up to 40% of the cost, and a contribution of at least 10% equity from the small business being helped.

The maximum SBA debenture is $5,000,000 when meeting the job creation criteria or a community development goal. Generally, a business must create or retain one job for every $65,000 provided by the SBA. The maximum SBA debenture is $5,000,000 when meeting a public policy goal unless the business is defined as a “Small Manufacturer” or generates renewable energy then the maximum debenture is $5,500,000.00.

Please contact our staff if you have questions regarding job creation criteria, public policy goals or need assistance to determine possible status as a Small Manufacturer.

Proceeds from 504 Loans must be used for fixed asset projects such as: purchasing land and improvements, including existing buildings, grading, street improvements, utilities, parking lots and landscaping; construction of new facilities, or modernizing, renovating or converting existing facilities; purchasing long-term machinery and equipment; or eligible debt refinancing.

The 504 Loan Program cannot be used for working capital or inventory.

Interest rates on 504 Loans are pegged to a spread above the current market rate for five-year and 10-year U.S. Treasury issues. Maturities of 10 and 20 years are available. Fees total approximately 3% of the debenture and may be financed with the loan.

Generally, the project assets being financed are used as collateral. Personal guarantees of the principal owners are also required.

To be eligible, the business must be operated for profit and fall within the size standards set by the SBA. Under the 504 Program, the business qualifies as small if it does not have a tangible net worth in excess of $15 million and does not have an average net income in excess of $5 million after taxes for the preceding two years. Loans cannot be made to businesses engaged in speculation or investment in rental real estate.

Wakarusa Valley Development’s staff works directly with the SBA and private sector lenders to approve the 504 Loan. We prepare all required forms, close and provide all necessary servicing during the entirety of the 504 Loan.

Frequently Asked Questions

Please visit our forms page for a list of information we will need from you to get started on your project.

The 504 Loan Program is designed to help small businesses obtain long-term, fixed-rate financing to acquire real estate and equipment with terms and conditions suited to the needs of small business borrowers.

Typically, 50% of a project’s financing comes from a private financial institution. This is a conventional (non-SBA guaranteed) bank loan secured by a first lien. A maximum of 40% comes from a Certified Development Company and is known as the “504” loan. The 504 Loan carries a fixed, below market interest rate, with a term of 20 years for real estate and 10 years for equipment. It is typically secured by a second lien. A minimum of 10% comes from equity. Conventional financing normally requires a small business to provide at least 20% equity. This benefits the borrower because more cash is available for working capital.

To provide funds to growing small businesses to drive economic development.

Certified Development Companies are local partnerships organized as non-profit community based organizations that provide 504 financing to local small businesses. They are “Certified” by the Small Business Administration to offer 504 Loans to eligible small businesses. SBA guarantees the development companies’ 504 Loans. This loan program has the lowest default and loss rate of any of SBA’s financing programs. Since 1986, Wakarusa Valley Development has been certified by the SBA to make 504 Loans to eligible small business borrowers.

Many people have a misconception that SBA loans require lots of paperwork, but in actuality, the amount of paperwork is similar to a conventional commercial loan. In recent years, the SBA has taken significant steps to eliminate paperwork and has streamlined the process and reduced the amount of time involved.

Generally, it takes the same amount of time to close a 504 Loan as it does to close a conventionally financed project.

No. Many 504 Loans are approved for startups and low debt-coverage borrowers, but it is not an eligibility requirement. In fact, most 504 Loans are made to borrowers with existing businesses or years of experience.

504 Interest Rates

25-Year Rate

December	6.10%
November	6.33%
October	6.08%

20-Year Rate

December	6.20%
November	6.40%
October	6.15%

10-Year Rate

December	---
November	6.52%
October	---

* Interest rates may vary

504 Featured Projects

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504 Loan Calculator

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