504 Loan Refinance Program

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.

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.