Small businesses now enjoy almost the same level playing field with big businesses when it comes to financing. Previously it has been quite hard for small businesses to get access to low-interest friendly loans that large businesses enjoy.

If small businesses are not able to access good and cost friendly financing, their ability to grow and expand is inhibited by lack of capital. The US small business administration introduced the SBA 504 loans to help to refinance small business that typically gets high-interest loans.

This program is suitable for small a business that seeks to refinance a commercial property California that they had previously financed with high-interest rates offered by commercial institutions. These high-interest loans force the business to dig deeper into their pockets hence leading them to have high operating costs.

The highs costs of running affect not only affect their profits but also the high cost of running is passed down to the consumer. SBA loans such as the 504 enable businesses to increase their asset and capital base by enabling them to purchase commercial properties at low-interest rates.

The 504 loans are the most popular and the top program of the SBA. Although it has had some struggles in the recent past due to restriction in refinancing, it has picked up momentum again and small businesses are winning.

A typical 504 loan is structured as follows; the lender finances 50% of the cost, 40% is financed by a certified development company that has been approved by the SBA while the final 10% is financed by the owner as a down payment.

The 504 is the most popular with borrowers because the bank only finances 50% of the project. Banks, on the other hand, prefer the 7(a) SBA loan. The 7(a) allows for more than 50 % financing from the bank. More financing means that the bank offers more money hence it earns more profits through interests. Although the 504 loan is better for the lender, some banks knowingly steer lenders towards the 7(a) because it earns them more revenue.

The 10% down payment clause has been quite popular with many business owners. Compared to other competitive market products, the down payment is low. This down payment can be further dragged down and minimized if the business is in a city that offers incentives to businesses making investments in their area.

Because of this small 10% requirement, businesses can be able to invest I project that may initially seem to be out of their reach. For example, a business can be able to invest in a $ 2 million project with only a down payment of $ 200,000. This has enabled a lot of small businesses to take on the expansions programs that have been gathering dust in the shelves.

In the third quarter of 2017, California grew at an annual rate of 3.4%, which was the same as the overall US growth rate. California’s 2016 growth rate of 3.3% was down from the 2015 rate of 4.4%. (Source: BEA).
In January 2018, the unemployment rate was 4.4%, down from 5.2% in January 2017. This was above the January 2018 national unemployment rate of 4.1%. (Source: CPS)

Employer business owner demographicsThis growth and investment have created more employment opportunities and grown the US economy as well as local economies. According to research, communities where business invests and expand, have better amenities and lower crime rate compared to communities where businesses are not able to expand.

This program is helpful to a business that wants to refinance a commercial property California that was financed with a commercial loan. Commercial loans chock businesses due to their high-interest rates. According to a story by the commercial real estate, a lot of small businesses have a pressing need to get some sort of refinancing to free them from commercial loans.

Small businesses that are expanding their operations or are planning to renovate their commercial premises should look towards the SBA 504 loan program. Businesses that refinance a commercial property California can be able to enjoy almost the same benefits enjoyed by large firms such as long periods of repayment and fixed interest rates. This, in turn, helps the business to lower their running costs hence they can be able to compete almost at the same level as their larger counterparts.

According to the SBA 504 loans policy, a small business can be classified as businesses whose net worth does not surpass $ 7million and net profits after tax do not surpass $ 2.5 million. Businesses from almost all industries are eligible including retail, professional services, wholesale, manufacturing amongst others. Most businesses in California are eligible to get these loans.

The 504 loan can be used for various purposes such as purchasing fixed assets such as land, improving the existing facilities, renovate, modernize, construction of new facilities. The money can also be to purchase machinery and equipment that their usefulness extends for a period of over 10 years.

Other cost associated such as legal fees, appraisals, architecture costs, fees and interests charged by the back can be included and covered by the loan. If the business needs financing for needs such as working capital, debt consolidation, and inventory, the SBA 7(a) loan program can be suitable for this.

Below picture shows employment by industry in California and Small Business Employment shares in counties like Butte, Calaveras, Colusa, Contra Costa, El Dorado, Los Angeles, Marin, Mariposa, Mendocino, Monterey, Napa, Sacramento,San Diego, San Francisco, San Joaquin, San Luis Obispo, Santa Barbara, Santa Clara, Santa Cruz, Shasta, Solano, Sonoma, Sutter, Trinity, Tuolumne, Yolo

california employement by industry 2018

The maximum financing by the SBA is usually $ 2 million, however certain manufacturing firms are eligible for loans of up to $ 4 million. The loans have also long repayment periods ranging from 10 to 20 years. The long repayment periods are suitable for investments in areas such as development or acquisition of the premises because businesses require a long period of time to be able to pay back the huge amounts of money incurred on such projects.

The following are some of the requirements that qualify business to get the SBA 504 program;

The business should not have defaulted or remitted late payment of the loan being refinanced within the last 1 year. The commercial mortgage should be at least 2 years old. The property should be at least 51% owner occupied and should meet all the other requirements of the SBA 504 program. Cash-out refinancing is permitted to cover the business operating expenses, but there are some restrictions to this. For refinance projects, the highest loan to value is 90%. Businesses with government-backed loans like the 504, USDA loans or the 7(a) cannot access this refinancing. This program is only available to businesses with commercial loans. What are the benefits of the SBA 504 loans to the businesses and the lender? The following are some of the benefits that both the business borrowing and lending can experience. Low down payments of only 10%. This enables the business to be able to use minimum amount hence remaining with money for working capital. Fixed rates hence giving the business owners peace of mind.


  1. Long-term repayment periods
  2. The lender has less risk as the SBA is in the second position.
  3. Lenders enjoy a lower loan to value ratio
  4. The lender gets CRA credits
  5. The clients are happy hence gains more confidence with the lender.
  6. Contributes job to the economy. This helps in reducing crime activities and grows the local economy

Small business owners are advised to take advantage of the SBA 504 loans program to be able to grow their businesses at low cost and friendly capital from the government.

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