What is a SBA 504 loan?

So, what’s a SBA 504 loan? I get this question a lot, as you can imagine. It’s a commercial loan product that’s typically 90 percent loan-to-cost financing. What I mean is we take the purchase price of the property, any soft cost and any renovations and put it together. Whatever that is, we’ll finance 90 percent of it.

This is opposed to ordinary conventional bank financing or credit union financing. These loans are typically going to be 75 to 80 percent loan-to-value. These are also usually the purchase price or the appraised value–whatever is less. So, in that situation, it’s one of the huge advantages of SBA 504 loans. Our down payment typically half or a third of the competition. That makes a big impact for business owners.

There’s no reason to liquidate your savings accounts and retirement accounts to buy commercial property if there’s another alternative. That’s a big piece of why SBA 504 loans are much better products than ordinary conventional bank loans.

The 90 percent loan-to-cost financing is on multipurpose properties. If it’s a special-purpose property, like a hotel, daycare or a freestanding restaurant, the SBA requires an additional five percent down payment. And if it’s a startup, that’s another five percent. So, worst case scenario with an SBA 504 loan, you’d be looking at 80 percent loan-to-cost financing. That’s the better end of a typical bank loan. 

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