FLORIDA SMALL BUSINESS DEVELOPMENT CENTER AT IRSC
SBA APPROVES RECORD NUMBER OF LOANS
DESIGNED TO HELP BUSINESS OWNERS
22
TCBusiness.com
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 Small Business Administration 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 SBA completed
a record number of loans under its 504
loan programs in the past month — the
highest monthly total in the 504 loan’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 in September
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
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.
The timing of this surge in 504 lending
makes sense given the low interest rates.
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.
THE LOWDOWN ON THE 504
Treasure Coast Business Magazine talked
to Debbie Petrell, senior vice president,
sales and marketing manager 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 is a certified development
company, a not-for-profit agent for
the SBA for the Florida 504 programs and
is one of the most active CDCs in the state
and country.
“In FY 2019- 2020, Florida First Capital
became the largest CDC in the country assisting
more than 350 small businesses with
projects totally over $900M,” Petrell said.
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
of 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 SBA, with Florida First
Capital, headquartered in Tallahassee,
finances up to 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 because up to 40% of
your loan is fixed for up to 25 years at the
current below market rates, and moreover,
the first mortgage lender, unlike conventional
lending, cannot balloon the first
mortgage before 10 years, which again
mitigates the risk of refinance, according
to Petrell.
SOME BASICS
Who qualifies? The loans typically are
available to for-profit, credit worthy businesses
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; machinery; long-life
fixed machinery and equipment. A 504
loan cannot be used for working capital or
inventory, goodwill assets, business stock
acquisition or franchise fees.
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 — for projects
that meet the energy efficiency public
Katherine Culhane has an extensive career
in banking, including roles in management,
business development, commercial
lending and private banking. She has a
master’s degree in organizational learning
and leadership, is a certified professional
behavioral analyst and is a Society for
Human Resource Management senior
certified professional. With more than
25 years of banking experience, Culhane
serves as the capital access specialist for
the Florida SBDC at IRSC. Contact her
for more information on this and all SBA
lending programs to help your business
expand, grow and succeed.
policy. For manufacturers, 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,” Petrell said.
“It’s important to give the small business
owner the option of the SBA loan.” v
This article is provided by the Florida SBDC at
IRSC, the Small Business Development Center
within Indian River State College’s School of
Business. The center’s team of business experts
works one-on-one with hundreds of entrepreneurs
and business owners each year by
providing confidential, no-cost consulting. The
center’s mission is to help Treasure Coast businesses
grow and succeed.
BY NANCY DAHLBERG
/TCBusiness.com
