An SBA 504 Loan May Be Exactly What You Need Right Now

Are you looking to expand your business, purchase real estate, or refinance your existing business loan? If you are, the SBA 504 loan program may be a great option for you to consider – and there’s a reason why now may be the best time. 

The U.S. Small Business Administration (SBA) 504 Loan Program is designed to provide financing for the purchase of fixed assets, such as real estate, buildings and machinery, at below market rates. There are three parties to an SBA 504 loan—the borrower, the bank, and the SBA-approved certified development company (CDC). Typically, the borrower-business owner puts up a minimum of 10%, a conventional lender (typically a bank, like Blackhawk Bank) puts up 50%, and a CDC puts up the remaining 40%.

What is a CDC?

CDC’s are established under the 504 Code as Non-profit Corporations, set up to support economic growth in their local areas. In Wisconsin, the CDC is Wisconsin Business Development (WBD). WBD is one of the most successful CDC’s in the country, and has partnered with hundreds of local lenders to help thousands of small businesses since 1981. 

For Northern Illinois, the CDC is Rockford Local Development Corporation (RLDC) and has been helping the growth of small businesses since 1979. RLDC has helped more than 600 area businesses, stimulating the local economy.

For those who live closer to Chicago, CDC's include Growth Corp., SomerCor, and Wessex 504. These lenders have supported local businesses in the Chicago area for a long time, helping grow local economies and communities. 

To see a full list of CDC's, visit the SBA’s website.

Why is now a good time to consider a 504 Loan?

As part of the SBA’s COVID-19 debt relief efforts, they are currently offering to pay 6 months of principal, interest, and any associated fees that borrowers owe for new 504 Loans disbursed prior to September 27, 2020!

Borrowers do not need to apply for this assistance. It will be automatically provided for loans made after March 27, 2020 and fully disbursed prior to September 27, 2020. The SBA will begin making payments with the first payment due on the loan and will make the subsequent six monthly payments.

In addition to the standard 504 Loan Program, the SBA also offers the 504 Refinancing Program. The SBA 504 Refinancing Loans are very similar to standard 504 Loans, but these loans are important tools designed for business owners to refinance existing debt into a 504 Loan.

Why is refinancing a good idea?

As if opening up working capital isn’t enough, refinancing existing debt can make good sense for a number of other reasons, including:

  • Being able to lock in below market rates on the debt
  • Being able to get out from under balloon payments
  • Being able to get out from under high interest rate loans
  • Being able to use the proceeds to hire more staff
  • Being able to finance business expense and save cash for mission-critical considerations

What are the loan parameters for an SBA 504 Loan?

Maximum SBA loan amount:  Loans are generally capped at $5 million

Interest rate: Below-market interest rates are fixed for the life of the loan

Required equity: A low-down payment (10 percent in most cases) conserves your working capital

Terms: 10, 20 or 25 - year terms

Use of proceeds: Long-term, fixed assets for expansion or modernization (usually real estate or large equipment). Refinancing of large equipment and/or owner-occupied commercial real estate may also be possible.

How do I get started?

If you would like more information, please contact Andy Williams, Senior Vice President & Senior Lender Business Banking at 815.877.2421   | Member FDIC | Equal Housing Lender


Andy Williams, Senior Vice President and Senior Lender Business Banking on Perryville Road in Rockford IlllinoisAndy Williams
Senior Vice President & Senior Lender Business Banking