There are numerous misconceptions about SBA 504 loans. Here are 5 biggies in True or False format:
1. You can only get an SBA loan if you can’t qualify for a “regular” loan
FALSE: SBA has what is called a “credit elswhere test” which states that if a borrower cannot get better terms “elsewhere” then they are eligible. Since a 504 loan is typically structured with a 10% down payment and a conventional bank loan requires 30%, the 504 loan offers better terms than you can get elsewhere…and you are eligible.
Similarly, the 504 loan has a 20 to 25 year first mortgage and a 20 year second mortgage which is “better” than the more typical 15 year conventional loan.
2. SBA loans are only for “mom & pop” shops
FALSE: Technically, the maximum SBA 504 loan could be used to help finance projects up to $20 million and green 504 projects in the $12 to $14 million range are going to become more common in the very near future.
3. SBA loans take too long
FALSE (slightly true): SBA loans are a lot quicker to process and approve than in years past and there are a few extra steps, but it is worth it to get such attractive financing.
4. SBA loans are expensive
FALSE (slightly true): Most of the traditional SBA loan fees are temporarily waived due to the American Recovery and Reinvestment Act, but even when they come back (possibly next year) SBA loans with still be a more affordable alternative when you consider the low rates, longer term, etc.
5. SBA 504 loans require Job Creation
FALSE & TRUE: SBA 504 loans do not require job creation if you are going green and technically they require job creation or job “retention,” and there are numerous ways to meet this requirement.