# SBA 504 Loan Program: Step-by-Step Procedural Guide
## Overview The SBA 504 loan program is a small business financing option that provides long-term, fixed-rate financing for major fixed assets like real estate and equipment.
## Structure - First Mortgage (50%): Conventional lender - Second Mortgage (40%): CDC/SBA portion - Down Payment (10%): Business owner
- May increase to 15% for new businesses
- May increase to 20% for special-use properties
## Step 1: Prequalification 1. Verify business eligibility:
- For-profit business
- Net worth under $15 million
- Net income under $5 million after taxes
- Owner must occupy 51%+ of property
- Project must create/retain jobs or meet public policy goals
2. Gather required documentation:
- Business financial statements (3 years)
- Tax returns (3 years)
- Business plan
- Personal financial statement
- Real estate information or equipment specifications
- Project costs breakdown
## Step 2: Application Process 1. Identify and apply with a Certified Development Company (CDC)
- CDC is a nonprofit organization certified by SBA
- Will assist with application package
- Helps structure the deal
2. Secure conventional lender for first mortgage
- Usually a bank or credit union
- Must provide minimum 50% of project cost
- Conducts own underwriting process
3. Complete CDC/SBA application package:
- SBA Form 1244
- Business organization documents
- Environmental studies
- Real estate appraisal
- Equipment appraisals (if applicable)
- Construction plans (if applicable)
## Step 3: Underwriting 1. CDC Review
- Analysis of business financials
- Verification of job creation/retention
- Project feasibility study
- Credit analysis
2. SBA Review
- Final approval authority
- Reviews CDC recommendation
- Issues authorization if approved
## Step 4: Closing Process 1. First Mortgage Closing
- Conventional lender closes their portion
- Funds held in escrow
2. CDC/SBA Debenture Closing
- CDC prepares closing documents
- SBA reviews and approves
- Debenture sale scheduled
3. Funding
- Debenture sold to investors
- Funds disbursed
- Project completed
## Step 5: Post-Closing Requirements 1. Ongoing Reporting
- Annual financial statements
- Tax returns
- Insurance certificates
- Job creation verification
2. Compliance Monitoring
- CDC annual inspections
- Occupancy requirements
- Job creation/retention verification
- Insurance maintenance
## Timeline Expectations - Prequalification: 1-2 weeks - Application preparation: 2-4 weeks - CDC/SBA approval: 4-6 weeks - Closing process: 4-6 weeks - Total typical timeline: 3-4 months
## Key Requirements Throughout Process - Maintain good communication with CDC and lender - Respond promptly to information requests - Meet all deadlines for document submission - Keep detailed records of all transactions - Maintain required insurance coverage - Comply with all SBA regulations and requirements