Finance Operations

Need to finance real estate or equipment? Don’t overlook the SBA 504

Are you a looking to finance a commercial real estate or industrial equipment purchase for your growing small business?

If so, an SBA 504 loan may be right for you.

Jacqueline Sousa, regional director of Florida SBDC at FIU, says many small businesses don’t know about – or don’t understand — the 504 loan program, which often is a less expensive option for capital if the business needs money for facilities and equipment.

We talked to Alejandro Buitrago, VP of Sales for Miami-Dade with Florida First Capital Finance Corp., about ways the 504 loan program may be a good source for growth capital for your small business. Florida First Capital Finance Corp. is a CDC, or a Certified Development Company, a not-for-profit agent for the SBA for the 504 program for Florida.  As the most active CDC in the state and the third-largest in the country, “We specialize in the 504 loan program,” said Buitrago.  “It’s all we do.”

To be sure, the SBA has a variety of loan programs for small business owners, from business acquisition to export working capital. But the 504 program is specifically for the acquisition for owner occupied commercial real estate as well as industrial equipment.

The way 504 loans are typically structured is that lending institutions are the first mortgage holder and provide 50% of the financing; the U.S. Small Business Administration (with Florida First Capital in Miami-Dade) finances 40% at below market rates, and the small business owner injects 10%.

Banks like to make the loans because they reduce their risk and small businesses preserve precious growth capital because they put in 10% rather than the typical 20%. Another advantage is you are mitigating interest rate risk by doing 40% of your loan fixed for the life of the loan, at below market rates, Buitrago said.

504 lending has been on the increase in Miami-Dade over the last year, Buitrago said. Florida First Capital Finance Corp. made 91 loans in 2018, representing more than $84.7 million in SBA dollars representing more than $200 million in real estate and equipment.

The vast majority of those loans were for owner occupied commercial real estate. That’s because every business needs a place to operate but not necessarily industrial equipment, he said, and “the SBA 504 Program is most commonly associated with real estate and many lenders aren’t aware that we’re able to finance equipment.”

So let’s get down to basics:

Will my small business qualify?

The loans typically are available to for-profit, credit worthy businesses operating at least two years, with a tangible net worth of not more than $15 million and average net income after taxes for the preceding two fiscal years of not more than $5 million.

How can I use the funds?

For real estate loans, funds can be used for the acquisition of land and existing buildings, expansion and renovation, including parking lots and landscaping, and green energy initiatives. For machinery: Long-life fixed machinery and equipment.

A 504 loan cannot be used for working capital or inventory, goodwill assets, business stock acquisition and franchise feels.

What are the loan amounts and repayment terms?

For real estate loans, the SBA portion is capped at $5 million but there is no limit on project size. For example, Florida First’s largest project last year was a $16 million construction project.  The limits are higher for green energy projects. For equipment, the SBA cap is $5.5 million per eligible project. Terms: below market, fixed interest rates with 10-, 20- and 25-year terms.

For real estate, this is all-in project financing, covering remodeling, fixtures, furniture, closing costs etc, Buitrago said. In March 2019, the Florida First office was doing 20-year fixed real estate loans at an effective rate of 4.58 percent.  The business must be at least 51% occupied by the small business owner.

For industrial equipment, loans are typically north of $500,000; large medical, manufacturing or printing equipment is typical. The office recently did a $4 million loan for a glass manufacturer. In March, the 10-year-rate was available at 4.62% interest rate.

Yes, but don’t SBA loans take a long time?

Buitrago says closing timelines are 60 to 90 days from when we receive the necessary documentation, similar to conventional lending. “There is a misconception that SBA loans take forever — that’s not the case. Our average closing is 75 days.”

“The objective of the 504 is economic development and job creation. There are situations where the borrower has the 20% to go with conventional [financing] but injecting all that capital would restrict them from future growth and hiring,” Buitrago said. “It’s important to give the small business owner the option of the SBA loan.”

For more information on SBA 504 loans, go to

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