SBA 504 loans good option for ‘growing’ businesses

Filed under: Banking & Finance |

Della Whitt, branch manager, and banker Jason Kopp work at the U.S. Bank branch inside Safeway at 2890 N. Powers Blvd.

Is your business growing? Need room to ramp up while retaining your capital? As commercial property values decrease and larger companies retrench into their core businesses, now might be the best time to expand.
The Small Business Administration’s lesser-known 504 loan, cousin to the 7(a), can be a good tool for small business owners looking to expand during uncertain economic times, said Horace McCowan, vice president and SBA specialist at KeyBank.
Traditional small business loans typically require 20 percent to 25 percent down, while the 504 loan program requirement is a minimum of 10 percent.
“That’s the magic — 10 percent down, the SBA backing and attractive, fixed interest rates,” McCowan said. “Equity is scarce and cherished in growing businesses, and conventional loans require 20 to 25 percent down.”
One of the 504 loan program requirements is that the money be used to retain or create jobs. And proceeds from 504 loans must be used for fixed asset projects such as purchasing land or improvements, construction of new facilities, or modernizing, renovating or converting existing facilities, or purchasing long-term machinery and equipment.
However, the 504 program cannot be used for working capital or inventory, consolidating or repaying debt, or refinancing.
KeyBank can do a “warm and fuzzy,” a preliminary assessment of viability, within 24 hours. And loan decisions are usually made within five business days.
“Historically, people think of the SBA as slow — but it’s not,” McCowan said. “It’s much faster than it used to be.”
Typically, a commercial real estate loan, including the real estate appraisal and other due diligence, can be closed in about six weeks.
The 504 loan program is structured so that the bank has the senior lien with a loan-to-value of 50 percent — so banks are likely to recoup all their money, even if the business fails. Since the SBA subsidizes some of the loss, banks are more willing to offer such loans.
The business owner puts down 10 percent, and the SBA holds the subordinated loan (40 percent of the project cost), McCowan said. SBA portions of 504 loans are currently 20-year, fixed rate, at 6.34 percent.
“The SBA’s mission is to create jobs. The 504 is a good vehicle for small business owners,” McCowan said. “Everything is tied to growth.”

U.S. Bank opens two Safeway-based branches

U.S. Bank opened two full-service branches inside Safeway stores this month.
Della Whitt is branch manager at the 2890 N. Powers Blvd. location, at the corner of Powers and Constitution Avenue. Heidi Arbogast is branch manager of the 7655 McLaughlin Road branch in Falcon.
Both branches will hold grand openings April 18-20.
U.S. Bank has 139 branches and more than 250 ATMs in Colorado. Its parent company, U.S. Bancorp, has $238 billion in assets.

BiggsKofford offers business round table

BiggsKofford is hosting a roundtable discussion, “Financial Management: The more you share, the greater the buy in,” from 7:30 to 9 a.m. April 24 at 630 Southpointe Court, Suite 200.
Sponsored by BiggsKofford, Wells Fargo and Benefit Resources, the event will provide information about financial management strategies and tactics that work for business owners. Led by Marcus Boggs, CEO of CEA Technologies, the discussion will include ideas about how to get employees engaged and passionate about your mission, what financial information to share and why, and the never-ending process of education.
To RSVP, e-mail sjohnson@biggskofford.com or call 579-9090.
Rebecca Tonn covers banking and finance for the Colorado Springs Business Journal.