SBA Small Business Loans for Women

Posted on by Kriti

The SBA CDC/504 SBA Small Loans for women is a  program that helps small businesses meet their financial obligations besides encouraging growth, and thereby creating new jobs. $50 billion has been disbursed till February 15, 2012, which has been responsible for creating a large number of new jobs (over two million). Small businesses going in for expansion or modernization can get long-term, fixed rate 504 Loans to purchase fixed assets. SBA’s community based partners for providing 504 Loans, also known as Certified Development Companies (CDCs), are responsible for disbursing the 504 Loans.

What are Certified Development Companies (CDCs)? They are basically nonprofit organizations involved in promoting economic development within local communities. These organizations are SBA certified and regulated, and work with SBA participating financial institutions. Nationwide, there are over 260 CDCs. Each CDC operates in a specific geographic area which is usually the state where they are incorporated.

The maximum SBA loan amount is $5 million. Regarding collateral, the financed project assets are generally taken for this purpose. Owners of 20 % or more of the business are also required to give a personal guarantee. 504 Loans are structured as follows: a participating lending institution provides up to 50% of the total project costs; SBA provides 40 % and the borrower contributes10 % – 20 %. 504 Loans must be used for fixed assets such as purchase of existing buildings, land and land improvement, utilities, parking lots, and so on as well as for constructing new facilities, modernizing or renovating existing facilities, acquiring long-term machinery or for refinancing debt related to expansion of the business through new or renovated facilities or equipment.

Some great benefits of the 504 Loan Program for small business owners are: 90 % financing; longer loan amortizations; fixed-rate interest rates; and improved cash flow. How do you know your small business is eligible for a 504 Loan Program? First, the business must be a profit-making one. Second, it must fall within the SBA’a size standards. Thirdly, the tangible net worth of the small business must not be more than $15 million and the average net income after federal income taxes for the preceding two years prior to application must be at the most, $5 million. For additional information do contact a Certified Development Company in your area.

Example of a Typical 504 Loan

Total 504 projects costs for a $1,000,000 project may include the following (eligibility requirements apply to the 504 portion of the project as well as the participating lending portion):

  • Building Purchase
  • Land
  • Renovation
  • Furniture and Equipment
  • Soft Costs
  • Total: $1,000,000

Loan Structure

  • $500,000, 1st lien with bank (loan obtained from a private sector lender covering up to 50 % of the total project cost)
  • $400,000, 2nd lien with 504 loan, 20 year, fixed rate  (loan obtained through a CDC, funded through an SBA-guaranteed debenture, covering up to 40 % of the total project cost)
  • $100,000, borrower contribution (contribution from the borrower of at least 10 % of the total project cost)

Source: http://www.sba.gov/content/cdc504-loan-program

 

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