The Official Blog of the SBA 504 Experts

504 Loan Blog

Some recognition for the 504
  • more-shares
    • Save on Delicious

As you may know by now, MCC has become “famous” for being the first commercial lender to always lead with the SBA 504 loan (AKA our SmartChoice Commercial Loan). Well, it seems that the “softening” in the economy and craziness in the mortgage industry has caused other lenders to give this little-known and under-used financing option a second look.

I spoke with Colleen Debaise, a reporter with SmartMoney magazine (which has a circulation of 824,327), a couple days ago about this very phenomenon, and they’ve posted an article on their website. For us, it’s a no-brainer: the 504 loan provides such great benefits for our Clients that we MUST lead with it every time a deal qualifies. Many other lenders (the big banks) are finding that these loans are less risky for them, and they like that now. After all, we ARE in the middle of a “credit crunch.”

Regardless of lenders’ motivations, I’m truly glad that the 504 is getting some good press. Hopefully lots of business owners will benefit. It’s just a little sad that it’s taken “softer” economic times for some in the mortgage industry to realize what a “shining star” the 504 is for the SBA . . and for the business owners who benefit from it.

You can read the full article here, or I’ve posted it below for your convenience.
(Here’s the web address, in case the link doesn’t appear for you:

* * *

Businesses Find Cheap Capital in SBA Mortgages
July 30, 2008
By Colleen DeBaise

FOR YEARS, A LITTLE-KNOWN Small Business Administration lending program known as the 504 has stood in the shadows of the agency’s flagship loan program, the 7(a).

But now, as banks tighten their lending practices and commercial office space becomes cheaper in some markets, a growing number of business owners are turning to 504 loans. These loans can be used to purchase business real estate or fixed assets (such as heavy equipment or machinery). And, because 504s are backed by the government, they’re typically easier and cheaper to secure than conventional commercial mortgages.

Here’s how a 504 loan works. A small business decides to purchase, say, a commercial office building for $1 million, which includes renovation work plus “soft” costs such as permit and design fees. To finance the purchase through a 504, the borrower must put down at least 10%, while an SBA-certified nonprofit agency lends another 40% through a government-backed bond offering. Then, a commercial bank or other lender provides the remaining 50%. Typically, the money is loaned at below-market interest rates, for longer terms than most commercial mortgages (say, a 20-year term rather than a 15-year term), making it more affordable for the average small-business owner.

The 504 “is a product that has so many advantages that it sells itself,” says Roslyn Goldmacher, president of the nonprofit Greater New York Development Co., a Bethpage, N.Y., certified development company, or CDC, that specializes in 504 loans. “The biggest issue is awareness.” The 504 is more complex than most conventional loans and therefore isn’t well-marketed, she explains. And historically, many lenders have veered away from the 504 just to avoid all of the extra rules and steps (such as finding a partner CDC) involved.

But things are starting to change. “I would certainly say there’s a lot more players now then there were three years ago, [when] we were one of the only banks that were pursuing this aggressively,” says Laura Larson, SBA program manager with KeyBank in Cleveland. Now, with the economy unsteady, banks are more interested in making low-risk loans such as the 504, which is secured by the property and government bond, she says.

KeyBank recently worked with a number of small-business clients — including a boat-repair company, a printer and a heating/cooling company — that used 504 loans to buy buildings and equipment that they would have had to lease under other circumstances. Other big banks that provide 504 loans include Citibank (C), Bank of America (BAC) and Chase (JPM).

A number of private lenders are providing 504 loans, too. “Our business is having the best year we’ve ever had,” says Chris Hurn, founder of Mercantile Commercial Capital, an Altamonte Springs, Fla., mortgage lender that helps a broad range of clients — including hotels, restaurants, professional-services firms and even doggie day-care operators — secure 504 loans. “I’ve often said it’s the best-kept secret of the SBA.”

While the 504 program’s rules and restrictions might scare off some business owners, most businesses easily qualify, Hurn says. For example, because the 504 program is chiefly designed to encourage economic development, borrowers are expected to create or retain one job for every $50,000 provided by the SBA. A business that doesn’t meet that requirement, however, still might be able to qualify if it meets one of the program’s community development goals, say, if the business is owned by a woman, minority or veteran. For more on 504 program rules, click here.

And while a traditional commercial mortgage usually requires a business to put down a higher down payment (often, at least 20%) and pay soft costs out-of-pocket. The 504, on the other hand, provides for 90% financing of total costs. And thanks to lower rates and extended terms, “it’s the least expensive capital available to small to midsize business owners right now,” he says.

Another bonus: Unlike other SBA products, a business owner doesn’t have to prove they’ve been turned down by a bank in order to qualify for the 504, says KeyBank’s Larson. “Some savvy business owners who could be eligible for conventional financing might look at the 504 as a way to preserve cash,” she says.

Small-business owners interested in a 504 should contact their bank or private lender, or their local CDC (there are about 300 nationwide). Keep in mind, the most appropriate candidates aren’t start-ups, but rather businesses that are ready to buy commercial space because they “have weathered the cycles a bit,” Hurn says.

(end of article)


  1. larry frank says:

    chris your the olny one on my radar for anyone looking for a commerical loan. hey look mr p has learned how to email.

  2. Diane Roehrig says:

    Thank you for featuring the 504 Loan Program. Chris Hurn is right. It is the best kept secret in commercial finance. Long term, fixed rate financing is almost extinct in lending today, especially for a small business. Thank you for calling attention to the only federal program that is designed and delivered to produce capital investment in a community in both jobs and tax base enhancement. The program is delivered through a network of non-profit companies at no expense to the taxpayer.

  3. Brandon says:

    How do you feel the new SOP will effect 504 lending? With the rules forcing a change of ownership as a new business/start up and some industries, such as preschools are now considered special use facilities….a loan pre August 1 that could qualify for 90% financing, now qualifies for 80. Which obviously makes the program alot less attractive.

  4. Dave Hare says:

    Can this program be used to refinance commercial properties ?

  5. Dagan says:

    Every time i come here I am not dissapointed, nice post

  6. Repair company says:

    I’ve never given this a try, but I think it’s about time I do.

Leave a Reply

Your email address will not be published. All fields required.

Back to all Entries