What does it take to qualify for the SBA 504 loan?

#1: Own a majority of the real estate.

One of the qualifications for a SBA 504 loan is the square footage of the real estate you’re getting into. Are you going to occupy at least 51%, a simple majority? If you’re not, then you may not qualify for an SBA 504 loan. Buying commercial real estate that you’re going to be one of many tenants in doesn’t make sense with this loan. In that case you may be better served by doing a conventional loan. But if you’re going to have a majority of the square footage, the SBA 504 loan is your go-to.

#2: You’re a small, private business.

If you’re a for-profit business and privately held, you’re going to qualify. Nonprofits obviously do not qualify. Publicly held companies do not qualify. If you’re a company that has a tangible net worth of less than $15 million, you’re going to qualify. Most small to mid-size businesses in America fall into this category. It’s really tough to get over that $15 million of, so more companies qualify than you expect.

#3: You actually need the loan.

You have to make sure you haven’t averaged more than $5 million a year in net income for the preceding two years to qualify. If you’re doing that well, you’re doing really well. You probably don’t need to go get a SBA 504 loan. Chances are, you’re batting off private equity firms and other folks who want to take you public, so that’s another piece.

#4: You’re a U.S. citizen or permanent resident.

Generally speaking, SBA 504 financing is eligible for U.S. citizens and legal permanent residents. Legal permanent residents would be people with green cards. There is a process where you actually qualify for SBA financing if it is majority owned by a foreign company. I’ve done a few of these loans. It’s a bit difficult–there are contracts involved and other terms. If that’s your concern, reach out to me and I can talk to you more offline about that. In general, it’s for American citizens and/or those with green cards.

One Comment on “What does it take to qualify for the SBA 504 loan?”

  1. My father and I just purchased a franchise and are looking to purchase 1.5 acres and build a 4250 sq ft building. We have not earned any money since this business has just been established and obviously have not been in business for 2+ years. Credit is perfect and have 10% down payment or more if needed. Would we qualify for 504 or do we need to go with a 7a? The terms for a 504 seem much more advantageous.

    Thank you

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