A New Twist On the 504 Program


In April, SBA Administrator Linda McMahon announced that the U.S. Small Business Administration is offering a 504 Loan and the Debenture that funds it with a 25-year maturity. A 25-year Debenture is a new threshold for the SBA. The new 504 Loan term complements the 10- and 20-year 504 Loan and Debenture that have been available since 1986. This new 25-year Debenture will be made available for 504 Projects that are approved on or after April 4, 2018.

The core mission of the 504 Loan Program is to provide long-term financing to small businesses for the purchase or improvement of land, buildings and major equipment, to facilitate the creation or retention of jobs and to support local economic development. The SBA approved $25.8 billion worth of 7(a) loans in the 2017 fiscal year, according to the agency’s annual report. By comparison, the State of Wisconsin reported just over $127 million in new 504 loans last year. Under the structure of the 504 Loan Program, the State Bank of Cross Plains partners with a Certified Development Company (“CDC”) to underwrite the loans and fund the debentures. In the Madison area, we work with Wisconsin Business Development, which is a state-wide organization certified and regulated by the SBA. 

With the growing budget pressures in Washington, it comes as no surprise that the SBA is facing new challenges. Trump’s budget proposals have sought cuts to the SBA, the funding resolutions that have passed Congress have featured less significant reductions. McMahon, who was appointed to head the SBA last year by President Trump, said “We’re getting strong congressional support. We have seen a little bit of [budget] reduction, but we didn’t have to cut our programs.” Evidence of this point is in the congressional funding resolutions which have the agency funded at $881 million on an annualized basis, compared to $887 million in the 2017 fiscal year. 

504 Loans are typically structured with SBA providing 40% of the total project costs, the lender covering up to 50% of the total project costs, and the borrower contributing 10% of the project costs. Under certain circumstances, a borrower may be required to contribute up to 20% of the total project costs. With a 25-year Debenture, a business may find the 504 program an attractive way to fix interest rates over a long term which could improve cash flow. The new twist on the 504 programs may be an excellent tool for helping your business expand. SBCP is a preferred SBA lender and can help you learn more about 504 financing options.  Give us call at (855) 256-7328 with any questions!

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