Kyle Jensen

Kyle Jensen

Every business owner understands the importance of making good investments — and it sometimes takes significant investments to move the needle for your small business. Perhaps you’re looking to purchase a building, need special equipment or want to remodel your existing facility. If any of these scenarios apply to you, an SBA 504 loan could be a good option.

With the 504 loan program, a borrower typically provides 10 percent equity with the remainder split between a bank (50 percent) and a Certified Development Company (40 percent) backed by an SBA guarantee. The portion held by the CDC is a fixed-rate note, which reduces the borrower’s interest rate risk on that portion of the loan.

Maximum loan amounts range from $5 million to $5.5 million to purchase real estate, equipment and machinery and can also be used to upgrade or remodel existing owner-occupied facilities. Because they typically require a 10 to 15 percent down payment and offer 10- to 25-year terms with low interest rates, SBA 504 loans are particularly attractive for small businesses.

Qualifications for an SBA 504 Loan

To be eligible for an SBA 504 loan, a company must be in business for at least two years and meet the following SBA guidelines:

  • High personal credit score and a financial history with no red flags, such as bankruptcies.
  • Minimal existing debt.
  • Ability to make a 10 to 15 percent down payment.
  • An eligible loan purpose.
  • The project being financed must create or retain jobs, or promote an SBA public policy goal.

The SBA’s public policy goals focus on the impact the small business will make to its community. For example, some eligible purposes include — but are not limited to — stimulating other business development, bringing new income into the community or aiding rural development. Most applicants should be able to meet these goals, and an experienced banker can help with this process.

2019 changes to SBA 504 Loans

If you’re interested in an SBA 504 loan, there have been several recent changes made to streamline the lending process and allow more small businesses to qualify:

  • Changes in how business owners are evaluated. As part of the underwriting process, SBA 504 lenders examine the finances of owners with a stake in the business. Only the largest stakeholders — those with 20 percent or more ownership — are evaluated, which can help shorten the loan process.
  • Jobs to project debenture ratio increased. SBA 504 projects that involve job creation or retention must meet a funding ratio set by the SBA. Each SBA 504 project must create or preserve one job for every $75,000 of borrowed funds, increased from last year’s requirement of $65,000. This increase should allow more small business owners to qualify.
  • Using an escrow account to close turnkey properties. If you’re using an SBA 504 loan to acquire a turnkey building you plan on occupying immediately, you may now use an SBA-approved escrow account to help you close more quickly.

Be strategic with your SBA loan application

Because of the complexity of the SBA 504 loan, it’s important to find an experienced banker who can help you with the process and help determine if this type of loan is right for your business.

For businesses interested in applying for an SBA 504 loan, Zions Bank is well positioned to help. Not only is Zions Bank an SBA-preferred lender, but it has also been the No. 1 lender of SBA loans in Idaho for the past 17 consecutive years.

If you want to move forward with an SBA 504 loan, the low-interest environment makes it a good time to apply. The SBA 504 loan can be an excellent way to finance large investments that will help your business grow and thrive.

Kyle Jensen is a Business Banking relationship manager for Zions Bank in Eastern Idaho. To contact Kyle, call (208) 523-5585 or email