When you’re running a small business, a huge loan might be out of your reach. But SBA 504 loans are much more doable for most small business owners. There are good points and bad points about using this type of loan to find your business, regardless of the industry you’re in.
Most Businesses Qualify
As long as your business operates in the United States, there is an extremely good chance that you’ll get approved for an SBA 504 loan. The one catch is that your business already has to be established. You need to be in a position where you can afford to buy commercial property or to have a building constructed to hold your business.
Avoid Balloon Payments
With this type of loan, your repayment terms are similar to what they would be for a home mortgage with a fixed rate. This avoids you being in a position where you’d have to make a balloon payment you may or may not be able to afford. The fixed rate of SBA 504 loans is generally lower than whatever the market currently is. This remains the case for the entire time you have the loan, which can be from 10 to 25 years.
Application Process Is Long
Despite the pros of getting an SBA 504 loan, one of the cons is the amount of time that the application process takes. The process is often held up because it has to include both the lender and CDC to come to an agreement on the terms of the loan before it can be approved. The terms that are agreed upon have to comply with the requirements set by the SBA.
Underwriting Process Is Complicated
Another downside to getting SBA 504 loans is that the underwriting process is complicated. The reason for this is that the underwriter will question every little detail of the loan and it won’t get approved until their questions are answered to their satisfaction. The questions could be for you, the lender and the CDC.
If you need more information on what SBA 504 loans can do for your business, please contact KPI.