Congress established the Small Business Administration (SBA) 504 loan program in order to promote the growth of small and medium sized businesses by expanding their access to favorable long-term fixed asset financing. Borrowers and lenders can access 504 financing through a “Certified Development Company” (CDC) that is certified and regulated by the Small Business Administration to make 504 loans.

Community Ventures (CV), an SBA Certified Development Company, serves the entire state of Kentucky. CV has been providing 504 loans to borrowers since 2000.

The SBA 504 program provides a maximum of 40% permanent financing of eligible project costs and takes a second lien on the collateral. A bank, selected by the applicant, finances 50% of the project and takes a first lien on the collateral. The applicant, in most cases, provides the remaining 10%. Typically, the bank lender will provide 90% of the project costs until project debenture funding at which time the proceeds are applied to the interim loan reducing the lender’s loan to 50% of the project.

If the small business has been in operation for 2 years or less, the applicant must provide an additional 5% of eligible project costs, thereby reducing the SBA 504 loan participation to 35%.

If the project involves a limited or single-purpose building, the small business must provide an additional 5% of eligible project costs, thereby reducing the SBA loan participation to 35% (or 30% if the business is also a start-up). Examples of single-purpose buildings include hotels, gas stations, car washes, bowling alleys, etc.