SBA 504 Loans

Expansion of business, purchase or replacement of real estate, and acquisition of heavy equipment If you want to expand your small business, Royale Capital can connect you with the most excellent financing packages available.

What are SBA Loans?

The Small Business Administration (SBA) of the United States is a federal government organization that assists start-ups and small businesses alike. It partners with Certified Development Companies under rigorous standards that ensure a large chunk of the loan for lenders, allowing small enterprises to obtain funding more easily. And Royale Capital plays a vital role in helping you with the entire lending process.

Types of SBA Loans Available

There are two kinds of loans readily accessible: 504 loans, which are typically used to acquire long-term fixed assets like real estate and major equipment, and 7(a) loans, which are used for more general small business needs like debt consolidation or inventory.

Features of SBA Loans through Royale Capital

Royal Capital only works with the nation's leading lenders. We will present you with lower rates than the market for the duration of the loan, often running from 2 to 3 percent for 504 SBA loans and as little as 5.5 percent or more for 7(a) SBA loans. Furthermore, Royale Capital offers long repayment terms for 10, 20, and 25 years for SBA loans. You can borrow up to $5.5 million for your start-up or provide assistance to your small business in any way. Royale Capital provides customizable terms for suitable and energy-efficient projects for loans, making the lending process simple and straightforward.

Remember that combining debts is the best approach to free up money. The SBA is ideal for creditworthy firms that are unable to obtain a traditional loan, and fortunately for you, Royale Capital makes the entire procedure comfortable and straightforward for you. In this article we will primarily focus on the SBA 504 Loan Program.

Digging deeper into the SBA 504 Loan Program

The 504 Loan Program offers long-term, fixed-rate funding of up to $5 million for substantial fixed assets that support business development and jobs generation. Certified Development Companies (CDCs), the SBA's community-based partners who govern non-profits and encourage economic growth in their communities, offer 504 loans. The SBA certifies and regulates CDCs.

Are you eligible for the loan?

To be eligible for a 504 Loan, your company must meet the following requirements:

  • Run a for-profit business in the United States or its territories.
  • Have a monetary net worth of less than $15 million
  • Have a net income of less than $5 million after federal income taxes in the two years before your registration.

Other basic qualifying requirements include meeting SBA size restrictions, having competent management competence, a viable company strategy, excellent character, and the ability to repay the loan. Loans are not available to enterprises engaged in charitable, passive, or speculative operations. To avail of the 504 loans through Royale Capital, it is advised you match the following criteria along with the factors mentioned above:

  • You showcase a viable business plan
  • Take up at least 51% of a building that will be bought (or 60 percent of new construction)
  • Do not speculate or invest in rental property.
  • It would help if you were not in arrears on any outstanding debt to the US government.

How can you use the 504 loans?

A 504 loan can be used to fund various financial products that foster business development and jobs. These include the procurement or development of existing buildings or property, as well as:

  • the purchase or construction of new buildings or property.
  • brand-new facilities
  • Machines and equipment that will last a long time
  • Or the enhancement or modernization of property, streets, utilities, parking lots, and landscaping.
  • Existing infrastructure

A 504 loan cannot be used for the following purposes:

  • Inventory or working capital
  • Debt consolidation, repayment, or refinancing
  • Rental real estate speculation or investing

How do you pay back your loan?

The traditional loan prepayment is ascertained by the lender on the 1st mortgage loan. If the borrower prepays in the first half of the term, the CDC loan is activated. This penalty is equal to one year's interest during the first year of the loan term and decreases to zero at the halfway point of the loan duration.

Loan repayment lengths vary depending on a number of circumstances, including:

  • Terms of repayment

The following maturity terms are available:

  • 10-years
  • 20-years
  • 25-years

Rates of interest:

  • Pinned to an increase above the ongoing market rate for 5-year and 10-year US Treasury securities.
  • Totals around 3% of the debt; the rate may be covered through the loan.

Differences between 504 loans and 7(a) loans

When looking for a small business loan, there are multiple alternatives, and many people compare the SBA 504 vs. 7a. The SBA 504 loan is frequently the best option for purchasing commercial real estate or significant machinery/equipment. If you want to buy a business or receive working capital, an SBA 7A loan may be a better alternative for you. Money from an SBA 504 loan might be used to purchase a structure, fund new construction or building modifications, or buy industrial machines and tools. An SBA 7a loan is used for short-term or long-term capital investment, purchasing an existing business, refinancing current business debt, or the procurement of furniture, fixtures, or equipment.

For SBA 504 Loans, the interest rates are fixed, while for SBA 7(a) Loans, the interest rates are predominately variable, but some fixed-rate options are also available. These loans have differing down payments; SBA 504 Loans offer 10 percent while 7(a) offers a minimum of 10 percent, and the borrower can increase to 20 to 30 percent. Lastly, the 504 loan offers ten years for equipment and 20 to 25 years for real estate. On the other hand, 7(a) provides up to 25 years for real estate and ten years for business acquisition and equipment. It also offers 5 to 7 years for working capital and a weighted average for mixed-use requests.