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Understanding the SBA 504 Loan Program: A Comprehensive Guide
Definition & Meaning
The SBA 504 Loan Program, also known as the Small Business Administration 504 Loan Program or the Certified Development Company loan program, is designed to provide financing for small businesses. This program specifically supports the purchase of fixed assets, such as real estate, buildings, and machinery, at below-market interest rates. The financing structure involves three parties: the business owner contributes a minimum of 10% of the total project cost, a conventional lender (like a bank) contributes 50%, and a Certified Development Company (CDC) covers the remaining 40%. Typically, the maximum loan amount is $1 million, but it can reach up to $1.3 million in special circumstances. This program aims to reduce the risk for lenders by ensuring that, in the event of a default, the private lender is repaid first.
Table of content
Legal Use & context
The SBA 504 Loan Program is primarily used in the context of small business financing. It is relevant in areas of commercial law and finance. Businesses seeking to purchase fixed assets can apply for this loan, which helps them grow and create jobs. Users can manage the application process themselves, but they may benefit from using legal templates provided by US Legal Forms to ensure compliance with SBA requirements.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: A small manufacturing company wants to purchase new machinery to increase production capacity. They apply for an SBA 504 loan, providing a 10% down payment, while a bank covers 50% of the cost, and a CDC finances the remaining 40%.
Example 2: A local restaurant seeks to buy a new building to expand its operations. They utilize the SBA 504 Loan Program to secure funding under the same structure of contributions from the owner, a bank, and a CDC. (hypothetical example)
Comparison with related terms
Term
Description
Difference
SBA 7(a) Loan
A general-purpose loan for small businesses.
Used for working capital and other business needs, unlike the 504 program which is limited to fixed assets.
Conventional Loan
A loan not backed by the government.
Typically has stricter requirements and higher interest rates compared to SBA loans.
Common misunderstandings
What to do if this term applies to you
If you believe the SBA 504 Loan Program may be beneficial for your business, start by assessing your eligibility. Gather necessary financial documents and consider consulting with a financial advisor or using legal templates from US Legal Forms to help with the application process. If your situation is complex, seeking professional legal assistance may be advisable.
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