Most businesses will require a loan at one point or another. How can you get the best rates and terms? Fortunately, the government has provided various means for small businesses to access through the Small Business Administration. One of its popular options is the 504 SBA loan. Here’s the rundown on how to qualify for an SBA 504 loan and its structure.

Credit History

The SBA wants to see that you are responsible and able to repay the offered loan. They will use a Statement of Personal History form to ascertain your character. The SBA will also run criminal background checks and find what legal action has been taken against the firm’s execs and owners.

They will consider your credit score and projected operating cash flow to decide your creditworthiness. A long time of experience in your field and a reasonable business plan will be factored in your favor.

Business Characteristics

The SBA also has some business requirements for you to qualify for a 504 loan. Being a U.S. government agency, it is expected that you do business in the United States. You do not necessarily have to be based entirely in the U.S. However, a physical presence should exist in the country. 

Since this provision is specifically for small businesses, your net worth should be under $15 million. In addition, your last two years of business income must be under $5 million after taxes. You also have to be a for-profit commercial endeavor, so non-profits are ineligible.

The SBA’s goal is to help businesses that have great difficulty getting funding from traditional loan sources. If it determines that you can obtain financing through other means, you will not be approved for a loan. If the company can fund itself or an owner is able, you will likely not qualify for the loan.

Loan Structure

The SBA will usually expect a down payment of up to 10% of the loan amount. A Certified Development Company contributes about 40% of the loan, and a bank or other lending firm will supply the rest. This is just a general guideline, and the required down payment may be increased depending on your circumstances. The specifics depend on your loan use. So it’s vital to communicate well with the SBA to understand what is expected.

An SBA loan is a wonderful way to get the working capital you require. It is not as straightforward as a traditional loan application, but the benefits of getting one can be well worth the effort.