SBA 504 Loans

The 504 Loan program is designed to provide financing for the purchase of fixed assets, which usually means commercial real estate or machinery and equipment with a useful life of at least ten years. The 504 program is an economic development program aimed at promoting growth and job creation; therefore it has job creation requirements dependent on the amount of funds received.

The 504 program works by distributing the loan among three parties; a conventional lender (typically a bank) lends 50% of the project costs, a Certified Development Company (CDC) lends 40% of the project costs, and the business owner injects a minimum of 10% of the project costs. If the commercial real estate is considered to be “special use” or a “start-up”, a 15% contribution is required by the borrower. If the property is “special use” and a “start-up” operation, a 20% contribution is required. Special use properties are businesses such as gas stations, motels, and assisted living facilities that can only be used for the purpose built.

Certified Development Companies (CDC) are established under section 504 of the federal code as non-profit corporations set up to support economic growth in their local areas. In providing a 504 loan, Meadows Bank works with your local CDC. Meadows Bank approves its portion of the financing request, and the CDC works with the SBA to approve their portion of the request. The SBA portion of the financing request is a debenture that must be arranged with the financial markets, so often times the SBA funds are not available until after the asset has been purchased. In order to fill this gap, Meadows Bank provides interim financing for the SBA debenture amount so the purchase transaction is not delayed.

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