In difficult economic times people often make the assumption that borrowing money as a business is a risky endeavor. However, when you are applying for SBA 504 loans the risk to everyone involved is relatively low and there are benefits that are well beyond what you may first stop to consider.
The SBA 504 loans are provided through the Small Business Administration in the United States and actually include three different entities in the loan. There is the business, which has to put up 105, or in some special cases 15% equity, a private lender, usually a bank, that puts up 50% and a Certified Development Company (CDC) that funds the final 40%. Both the private lender and the CDC have a lien to secure the loan. In addition there is a 100% SBA guaranteed debenture to cover 40% of the project costs.
Helping Businesses
When a business is able to secure SBA 504 loans they use those funds to invest in real estate, machinery and equipment or buildings. This allows the business to avoid investing all of their profit into expansion so they have enough working capital to keep operating and expanding.
In addition when a business gets SBA 504 loans and they purchase property and improve on existing structures or add new construction they are creating jobs and employment at a local level.
Payment Benefits
It is important to remember that SBA 504 loans are in essence a secured loan since the funds are used to buy either real estate or machinery. This means that the interest rates can be kept relatively low as there are no unsecured loan issues as are common in many traditional types of business loans through a bank or financial institute. The loan also considers the assets of the principals to the business, so the lenders are virtually ensured that they will have full repayment of SBA 504 loans.
In addition SBA 504 loans tend to have longer terms for the same reasons listed above. It is not uncommon for a business borrowing close to the maximum amount to be given up to 20 years for full repayment. For most businesses that use the program repayment terms will be between 10 and 20 years.
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