That Secret Loan: The 504

“Banks want to create jobs in the community; they have a community reinvestment requirement they need to fill, and banks need help with that,” said Rick Benito, senior vice president of business credit lending products with Bank of America. “The 504 is a great answer to that.”

Benito was speaking during a recent webinar put on by the Coleman Report, which was moderated by the Report’s president, Bob Coleman.  The Coleman Report is a website devoted to coverage on small business lending.

The “504” referred to by Benito is that of the Small Business Administration’s 504 loan, which finances fixed assets such as real estate and equipment. Loans are financed by banks and Certified Development Companies (CDCs) and guaranteed by the SBA. Part of the SBA’s requirement is that for every $65,000 invested, it should created or retain one job.

Usually in the world of franchising, the SBA 7(a) loan gets all the press, and is the most common SBA-guaranteed loan used.

Beth Solomon

Beth Solomon

But the panelists on the webinar said the benefit of the 504, among other things, is owning real estate—and it is a secret they are trying to sing from the rooftops.

“The No. 1 asset in a person’s company is real estate, when you look at their balance sheet,” said Coleman. Although, he added, leasing allows you flexibility, no real estate maintenance, and increased cash flow.

Panelist Beth Solomon, president and CEO of the National Association of Development Companies, the national trade association for CDCs, explained how banks and CDCs work in tandem with the 504.

The numbers to remember are 50-40-10, she said, whereas the bank provides 50% of the purchase price, the CDC provides 40, and the purchaser provides 10. “It is a very straightforward structure,” Solomon added. The 504 has a 20-year, fixed-rate, and the fees are about a ½ point higher than that of a conventional loan.

There are about 250 CDCs throughout the country which work directly with the SBA to get the financing closed. “The borrower never deals directory with the SBA,” she said.

Bank of America’s Benito is on the board of one of the largest CDCs in the country, and said the relationship between banks and CDCs gives borrowers “two teams of experts working to get from application to funding, usually in 45 to 60 days.”

To qualify for the 504, borrowers should have tangible assets of less than $15 million, a credit score of about 620 or higher, trong and consistent cash flow, collateral, and established experience in their business or industry. When financing equipment, the equipment should have a useful life of about 10 years.

Solomon herself just took over at the helm of the CDC trade association earlier this year, and has set high goals for her organization: to double the loan volume of CDC 504 activity by 2016.


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About This Blog

News, notes and commentary on franchise financing, including SBA lending, both the SBA 7(a) program and the SBA 504 program, franchise finance programs, development incentives, big deals and startup lending.

  Mary Jo Larson is the publisher of Franchise Times Magazine and its sister publication, the Restaurant Finance Monitor. She is a frequent speaker at meetings and conferences, and at the Restaurant Finance & Development Conference. You can find her on Twitter at @mlarson1011.
  Reporter Jonathan Maze covers restaurants and finance for Franchise Times. He also writes for our sister publication, The Restaurant Finance Monitor, and writes a daily blog on the restaurant industry at You can also catch him on Twitter at @jonathanmaze.




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