In an attempt to stimulate the economy and create new opportunities for business owners, the Small Business Association (SBA) has recently loosened some of its requirements for 504 loans. This move by the SBA is designed to help generate some much-needed revenue in the small business community. 504 loans are among the least expensive options available to small business owners. But is a 504 for loan for everyone?
The Terms
The down payment for 504 loans is also very affordable at 10%. There are 10 and 20-year repayment options. However, a 504 loan has some very specific stipulations. The loan must be used to expand a business, meaning that it must create or sustain a certain number of jobs. Small business owners must use the funds by purchasing fixed assets, such as a building or new equipment.
The Changes
Recent changes in policies have made it more affordable for small businesses to obtain a 504 loan. A number of fees have temporarily been eliminated, lowering the overall cost of the loan and making it possible for small businesses to thrive. Other changes include the allotment of a limited amount of debt refinancing with a 504 loan.
The Catch
The SBA 504 loans feature a tricky set of terms given the current economic conditions. Very few small businesses are looking at expansion during these times of financial uncertainty. As the market continues to shift, small business owners are becoming more and more conservative with spending, development and expansion projects. The recent changes to the loans make it easier and more affordable for small business owners to take out a 504 loan; however, these loans are basically restricted to expansion-based projects. The money absolutely can’t be used to cover existing debt or the cost of overhead.
The Bottom Line
While the financing options and repayment terms are enticing, the restrictions on what the money can be used for make it a risky solution for small business owners. For the right business with a well-laid plan and signs of sustainability, a 504 loan might be a wise solution. The bottom line is that a 504 loan might not be the solution every small business owner is looking for, but it may meet the needs of certain types of business in key industries.
