Many business owners have the idea that Small Business Administration loans are difficult to get, take a long time to close, and they’re not worth the effort. This misunderstanding comes mainly from borrowers who went through the process with lenders that do not make SBA 504 loans regularly who get tripped up by loan regulations and procedures they’re unfamiliar with. They don’t understand the loan process and infrequently work with the SBA, causing undo difficulties.
A preferred lender like Liberty SBF can guide borrowers through the process seamlessly and we know how to anticipate problems before they come up. We’ve heard all the reasons why small business owners shy away from going with an SBA 504 loan. Below we dispel the most common myths.
TOP 5 SBA 504 Myths
1. Too Long and Cumbersome
This is probably the most common misconception about SBA 504 loans. Much of it comes from the fact that the SBA requires a lot of documents from the business owner. Loan processors at Liberty SBF know exactly what is needed to underwrite the loan, usually the same exact documentation required by a conventional commercial property loan. As a preferred lender, we know exactly how to structure a loan package. We work with all parties to expedite the loan to closing quickly and efficiently.
2. Property Needs to be 100% Occupied by Owner
SBA 504 loans are more flexible in occupancy requirements than you might think. Most borrowers think they have to occupy the entirety of the property’s square footage to qualify. And while most small businesses will, there are cases where a portion of the property is rented out. In order to qualify for an SBA 504 loan, the business must occupy at least 51% of the property, leaving the rets to be leased out to another business giving the owner another source of revenue.
3. It’s Only for Mom & Pops or Startups
Actually, it’s the opposite. While many Mom & Pop type business can get an SBA 504 loan, most of these businesses are middle or larger sized companies with multiple employees. From Main Street to Middle America, small businesses across the country can get an SBA 504 loan. Liberty SBF frequently funds SBA 504 loans anywhere from $1 to $10 million in industries as varied as assisted living facilities and warehouses to self-storage facilities and schools.
4. It’s a Loan of Last Resort
Many people think that after a borrower has been turned down by for a bank loan they have to go to the government with hat in hands for a loan as a last resort. Again, for most small businesses this is the exact opposite of what should happen. Any business owner with good credit and at least three year’s operating history should apply for an SBA 504 loan first when purchasing a commercial property. The terms are much more favorable than any other small business loan you will find anywhere. Low, long term rates and up to 90% loan-to-value help small business owners save cash for operating expenses.
5. SBA Lends the Money
The Federal Government does not put up the money for an SBA 504 loan, so the taxpayers do not fund small businesses who want to purchase a property. An SBA 504 loan has three parts. If you’ve ever taken a home mortgage and a home equity loan, then you can easily understand how an SBA 504 loan works and how it can provide up to 90% LTV financing. A first lien loan of 50% LTV is provided by a bank or a direct non-bank lender like Liberty SBF. The second lien of up to 40% is provided by a secondary institution called a Certified Development Company (CDC). A CDC is a non-profit certified and regulated by the SBA that promotes economic development within their communities, which includes funding second lien SBA 504 loans. While the money is not provided by the SBA, the CDC portion of SBA 504 loans are guaranteed by the U.S. Government. CDCs work together with participating lenders Like Liberty SBF. Since the SBA 504 loan program launched in 1958 it has been self-funded and hasn’t cost the taxpayers any money in its mission to help U.S. small business owners grow their businesses.
Liberty Small Business Financial Authorized SBA 504 Lender
Liberty SBF is a mission-based lender that provides capital through the SBA programs at a low cost to borrowers. Since its inception ten years ago, Liberty SBF has participated in more than $2 billion in transactions involving SBA programs.
Are you looking for an SBA 504 loan? Begin your loan application with Liberty SBF today!