This article I wrote for the Scotsman Guide inlcudes everything on the 504 loans, from the basics of what they are to who can qualify. I even go to the extent of describing the higher ceilings on the net worth of businesses that can qualify for the loan, the advantages, and the upcoming proposed changes to the loans in this November 2008 issue of the Scotsman Guide.

1. The 4-1-1 on the 504
Recent changes make the U.S. Small Business Administration’s loan program more relevant
By Christopher Hurn, president and CEO, Mercantile Commercial Capital LLC
D
      With this change, the SBA has demonstrated loan-to-cost financing that 504 loans offer. The
year, there was an interesting and note- that it recognizes the need to expand this loan lower downpayment makes it easier for business-
worthy exception to the general decline program to more businesses. Every year, millions owners to afford the initial capital outlay for an
in real estate lending — the U.S. Small Business of available 504-loan-program funds go unused. acquisition or construction project. In addition,
Administration (SBA) 504-loan program. For fiscal 2007, for instance, the program had $1.2 the 504 enables borrowers to include renova-
Although most SBA loans are down sig- billion left in its budget for loans — funds that tions, closing costs and other soft costs along
nificantly as a reflection of the overall lending went unused by borrowers. Unlike the SBA’s 7(a) with furniture, fixtures and equipment in the
environment, the 504-loan program, which program, the 504 program has never approached, financing package.
enables businesses to buy or enhance their own let alone exceeded, its funding limit.
commercial real estate, has actually posted some The new eligibility standards for businesses “The SBA has demonstrated that
surprising results. The program’s activity has will enable more companies to use the loan pro-
decreased by just 3 percent from 2007 in SBA gram to grow their operations and create jobs. it recognizes the need to expand
Region No. 4, which includes Florida and other [the 504] loan program to more
southeastern states; it has increased by 1 percent Proposed changes
in Region No. 1, which includes New York and The other — and potentially more significant —
businesses. Every year, millions
New Jersey. change has been proposed as part of the Small of available 504-loan-program
The SBA and lawmakers have noticed the Business Lending Stimulus Act of 2008, which
504-loan program’s performance, and several funds go unused.”
as of press time is being considered by the Sen-
new measures will help to make the loans avail- ate Committee on Small Business and Entre-
able to thousands of businesses that would not The 504 loan covers 90 percent of the total
preneurship. Provisions within this proposed
have qualified for it in the past. project cost, as opposed to the 70 percent to
legislation would reduce fees for SBA loans and
As commercial real estate opportunities 80 percent of the property’s purchase price or
open the 504-loan program for borrowers to re-
become available, mortgage brokers can help appraised value (whichever is less) offered with
finance higher-interest conventional loans.
their small-business-owner clients reap the conventional commercial loans. The typical
By opening the 504-loan program to refi-
benefits of owning versus leasing their space breakdown of the funds in a 504 loan is: 50
nances, thousands of small-business owners
with the help of the 504 loan program. percent from a bank or other private lender,
across the country could gain access to loans
40 percent from the SBA and 10 percent from
that are substantially better than even the most-
Higher ceilings the borrower.
competitive conventional loans for commer- The portion of the 504 loan funded by the
Recently, the SBA raised the ceilings on the net cial real estate. By significantly lowering their
worth and earnings of businesses that can qual- SBA represents some of the least-expensive
monthly commercial mortgage payment by refi- financing available for small businesses. The
ify for 504 loans. Companies with a net worth
nancing with a 504 loan, business-owners can blended rates for the entire loan often are sig-
of as much as $8.5 million and as much as $3
use the funds to add employees and resources nificantly lower than those of conventional
million in annual earnings may now obtain a
to grow their businesses. loans and can be fixed for the duration of 20- to
504 loan, compared to the prior limits of $7.5
million in net worth and $2.5 million in an- 25-year amortizations. In addition, borrowing
Advantages from the SBA through the 504 program does not
nual earnings.
Mortgage brokers can help small-business own- preclude business-owners from also applying for
ers purchase — rather than lease — their space funding from the SBA 7(a) program for working
Christopher Hurn is president with the 504-loan program. The savings in inter- capital, inventory and other needs.
and CEO of Orlando, Fla.-based est payments, as well as in the 504 loan’s substan-
Mercantile Commercial Capital
LLC, a 2007 Inc. 500 company
tially lower equity requirements, are significant. Requirements
The greater long-term benefits, however, stem The SBA 504 loan is available to almost any type
and one of the largest providers
from owning commercial property that can con- of for-profit small and midsized business in the
of SBA 504 loans nationwide. He
can be reached at (866) 622- tinue to generate income even after a business- United States, with the exception of financial-
4504. Additional information is available at www. owner retires. services providers, passive real estate investors,
thesmartchoiceloan.com. Business-owners can reduce their initial
capital outlay by leveraging the 90-percent Continued …
R F S G C E  ., N 
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2. The 4-1-1 on the 504
… Continued
companies having a tangible business net worth
greater than $8.5 million, or companies with net
profits after taxes that averaged more than $3
million during the past two years.
The 504 loan requires applicants to demon-
strate job creation, export potential, or other
economic-development or public-policy goals,
and the vast majority of applicants can meet
these goals.
The funds must be used for capital expenses,
including land, buildings, construction and
equipment. Owner-occupancy requirements are
51 percent of the total square footage for acquisi-
tion loans and 60 percent for new construction
financing. In addition, multiple businesses can
jointly pool 504 financing if they meet occu-
pancy requirements together.
The current lending climate makes the 504-
loan program more essential and more ben-
eficial for small businesses than it has been in
the past 20 years. Recent changes — as well as
proposed changes — make the program more
accessible, affordable and relevant to today’s
small-business owners.
R F S G C E  ., N 
All rights reserved. Third-party reproduction for redistribution is prohibited without contractual consent from Scotsman Publishing Inc.