by Shennandoah Diaz

Created on: September 16, 2009   Last Updated: October 05, 2009

With the economy still in recession and credit virtually dried up, many small to mid-sized businesses are finding it difficult to secure loans for fixed assets. Although credit has been restricted, businesses still have access to funds at reasonable rates and with low fees. Specifically, the Small Business Administration's 504 loan program is still a strong and viable source of funds for companies.

The SBA 504 program was established to help stimulate economic growth, job creation, and promote public policy goals by supporting small businesses in the acquisition and expansion of real property. The program is facilitated through co-lender financing with a variety of bank and non bank institutions. The typical structure of a 504 loan is as follows:

The bank covers 50% of eligible costs. The amount provided by the bank is not backed by the SBA. Furthermore, the bank is able to set their own rates and fees for their portion. An SBA certified Capital Development Corporation will provide funds at a fixed rate for up to 40% of eligible costs through a government backed loan. Generally, a Business Development Officer or an independent consultant working with the CDC acts as a facilitator and helps bring together the documents and parties to execute a SBA loan. The remaining amount is covered by the owner and can be anywhere from 10-20%. Certain micro-lenders offer small business loans to cover the owner's injection in order to help the company preserve working capital. Rates and terms can vary for these loans, but they are available.

There are several advantages to a 504 loan. For the lender, they are handling a loan with a lower loan to value ratio (LTV) and are able to set their own rates and fees. For the borrower, the 504 loan helps preserve working capital with lower injections at rates generally below market and for a longer term. Also, recent changes brought about by the stimulus bill and other policy amendments have generated funding for special initiatives including the development of energy efficient, LEED certified buildings.

Whether a company is looking for a traditional loan or a SBA 504 loan, according to Helena Hauk, owner of 5th Gear Consulting which specializes in 504 loans, there are .

Credit History: The lender will look at both your personal and business credit.

Vested Interest: A lender wants to know they are lending to a business owner who will work hard to insure the company is profitable and can repay its debt. Therefore, having a reasonable

• 1
• 2
• Next Page >>