How to Apply for a SBA 504 Loan

This SBA 504 Loan video discusses some general information on how to apply for a SBA loan. For easy reference, see the full transcript below the video.

 

We’ve discussed the history and benefits of the SBA 504 loan program and how it works.  If you’ve determined that this might be something right for your business, you might find the following information helpful as I’ll dive into the process for obtaining such small business financing:

Choosing the right bank. It is usually preferable to work with the bank you already have an existing relationship with. Your existing bank will likely be familiar with your business and should be in the best position to help you determine if the 504 loan program makes sense for you. In addition, while a smaller concern, your existing bank may already have much of the information you’ll be required to submit for a SBA loan approval.  Related to this, something you and your bank should keep in mind and discuss is the fact that the SBA will require the participating bank in a 504 arrangement to certify that they are not willing to make a traditional loan for your proposed project, without the assistance of SBA.

Experience with SBA. While working with your existing bank has many benefits, it is something to be evaluated carefully.  A key factor to consider is the bank’s experience level working with the SBA and the 504 program in specific.  If your bank is not very familiar with SBA or the SBA 504 loan program, they will be less capable of helping you determine if it is right for your business.  Some banks dislike working with the SBA as it inevitably requires more time and effort originating and administering.  Others may have had a negative experience or two that has caused them to shy away from SBA loans.  In short, the bank’s prior experience with SBA plays a big role in determining whether they will be a good partner with which to explore the SBA 504 program. 

Motivation. Another key factor to consider is the bank’s general motivation for working with small businesses.  From a strict profit and loss perspective, banks will generally make more money focusing on mid to large sized businesses as compared to small business.  In addition to smaller businesses being more vulnerable and less stable, the bank’s administrative costs to originate a $10MM loan are not all that much more than to originate a $1MM SBA loan.  There are some differences to be sure but they are more than made up for with the additional interest income on the larger loan.  With this in mind, generally speaking, smaller banks are more motivated to work with small businesses.  Since they are not big enough to compete for the larger loans, they are usually built to work better with small and mid-level businesses and are more eager to do so.  All this to say, it is definitely possible to be unjustifiably steered away from the SBA 504 program due either to your existing bank’s prior experience or lack of experience with the SBA or due to the bank’s lack of motivation to work with smaller  businesses.

Loan Officer. Experience level with SBA and the SBA 504 program varies among loan officers as well.  Some have worked on a variety of SBA loans, others may have never done so.  Closing SBA loans, and the SBA 504 program in particular, requires more organization and diligence on the part of the loan officer and working with a loan officer who has closed multiple SBA loans- and 504 loans in particular-  in the past, is a huge advantage.  To summarize, I would highly recommend working with a loan officer with SBA business loan and SBA 504 experience.  It can make a big difference.

 

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