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Unlock Growth with an SBA 504 Loan: A Step-by-Step Guide To Business Eligibility

sba 504 compliant feasibility study

Fueling your entrepreneurial dreams can be a challenge. This is where the SBA 504 loan steps in, offering a unique path to long-term, fixed-rate financing for your small business.

Designed to empower growth and job creation, this SBA-backed program provides a powerful tool to acquire major fixed assets like real estate or equipment. Let's dive into how to determine if your business qualifies and what to expect on the road to securing this advantageous loan.

Meeting the SBA's Benchmark

The first step is assessing your business against the SBA's eligibility criteria. Here's a checklist to ensure you're on the right track:

  • For-Profit Powerhouse: Your business must be a for-profit entity operating within the U.S. or its territories.

  • Financial Strength: The tangible net worth of your business should be under $15 million, and your average net income after taxes for the past two years must be less than $5 million.

  • Focus on Investment, Not Speculation: The loan cannot be used for speculative purposes or investment in rental real estate.

  • Demonstrating Repayment Ability: Solid cash flow projections are essential to convince the SBA of your capacity to repay the loan.

  • Experienced Leadership: A capable management team with relevant industry expertise is a must.

  • Building Trust: A history of good character and responsible financial management by both the business and its owners is crucial.

  • Achievable Vision: The SBA needs to be confident that your proposed business plan is realistic and has a high chance of success.

Remember, the SBA acts as a guarantor, not a direct lender. This means you'll need to secure financing through a participating bank, credit union, or other SBA-approved financial institution. While these institutions may have additional requirements, a strong showing on the SBA's checklist positions you well for approval.

The Three C's of Success

Many lenders base their decisions on a set of core criteria often referred to as the "Three C's of Approval":

  1. Credit: This includes both your personal and business credit history.

  2. Cash Flow: Your ability to comfortably repay the loan based on past financial performance is a key factor.

  3. Collateral: Assets you can offer as security for the loan can strengthen your application.

Planning is Key

By carefully evaluating your business against the SBA's guidelines and understanding the lender's perspective, you can significantly increase your chances of securing an SBA 504 loan. This strategic planning empowers you to confidently approach lenders and pursue the funding that will propel your business to the next level.

Are you seeking an independent SBA 504-compliant feasibility study for CDC? MMCG provides Small Business Administration-compliant feasibility studies for any real-estate-based projects. Contact us today.


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