This is an illustrative example of how this type of financing is commonly structured. It does not describe a specific client, and actual terms depend on the lender's review of your business.
The Situation
A commercial contractor with several years of profitable history leases a small shop and stores equipment at a rented yard. Rent keeps rising, and the business wants a building with room for its fleet.
It finds a $1.2 million warehouse with an office, a fenced yard and space to grow, and it plans to occupy the whole building.
A typical SBA 504 structure for a $1.2M purchase
Why This Structure Fits
- Only 10% down keeps cash available for equipment, payroll and bonding.
- A long-term fixed rate on 40% of the project makes occupancy costs predictable.
- Owner-occupied buildings, plus long-life equipment, are what the 504 program is designed for.
How It Would Work
- 1
Pre-qualify
Review tax returns, interim financials and debt to confirm the business can carry the new payment.
- 2
Bank and CDC term sheets
A bank provides the first mortgage; a Certified Development Company provides the SBA portion.
- 3
Appraisal and environmental review
Required for the property before approval; older industrial sites may need more environmental work.
- 4
Approval and closing
The bank funds its loan and an interim loan for the CDC portion at closing; the SBA debenture replaces the interim loan afterward.
Things to Know
- The business must occupy at least 51% of an existing building it buys.
- Plan for closing costs, the appraisal, the environmental report and SBA and CDC fees.
- Many 504 loans close in roughly 60 to 90 days, depending on the property and the lenders.