Economy Finance

Here’s some reasons why SBA 504 loans had a record-shattering month

At a time when small businesses across the country are struggling to stay afloat, some business owners are investing in business growth by expanding their facilities or buying equipment. In fact, a record number may be, according to some very recent loan data.

With SBA 504 loans, businesses are able to purchase land, buildings, or other major assets such as large equipment. Besides low interest rates and long payback periods, what makes them attractive to small business owners is that they are typically only required to put 10% down.

Here’s the news: The Small Business Administration completed a record number of loans under its 504 loan programs in the past month – the highest monthly total in the 504’s 34-year history. In the past month, the SBA approved a total of 1,462 loans amounting to $1,284,274,000,

That is more than double the previous monthly funding record set back in September of 2012. For context, the SBA issued 6,000 504 loans totaling $4.9 billion during the entire 2019 fiscal year.

The increased volume comes as interest rates for loans are at historic lows. In fact, in August, the SBA reduced rates on the 20-year 504 loans to 2.214% while loans with terms of 25-years now carry a rate of 2.269%. The 25-year option was only introduced in April 2018, joining the 10- and 20-year programs.

Currently, for any SBA loan closed before Sept. 27 including the 504,  the SBA will pay 6 months of principal, interest, and any associated fees that borrowers owe. At this time, the date hasn’t been extended.

The timing of this surge in 504 lending makes sense given the low interest rates and perhaps that impending Sept 27 deadline. Or it may be a signal of recovery for certain small business segments. Regardless, it’s certainly good news for small businesses and the economy at large.

Let’s find out more.


Last year, GrowBiz 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 and is one of the most active CDCs in the state and country, “We specialize in the 504 loan program,” said Buitrago.  “It’s all we do.”

The SBA offers a variety of small business loan programs, 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 last year.


Who qualifies? 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.

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.

Project size: For real estate loans, the SBA portion is capped at $5 million but there is no limit on project size. 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.

“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 in last year’s interview. “It’s important to give the small business owner the option of the SBA loan.”

For more information on SBA 504 loans, go to

Please send GrowBiz topic suggestions and feedback to GrowBiz@FIU.EDU

Leave a Comment