May 2020
Commercial Lending
The Underrated Advantage of the SBA 504 Loan Program

When people think of the Small Business Administration (SBA) 504 Loan Program, they generally associate it with its low 10% down payment requirement – and yes, preserving precious capital cannot be overstated.  However, there is an underrated and often overlooked advantage to an SBA 504 loan: mitigating interest rate risk.

The Underrated Advantage of the SBA 504 Loan ProgramAlthough it is widely known that SBA 504 loan interest rates are fixed and fully amortizing for up to 25 years, it’s important to take a moment and really look at the advantage for a small business to NOT have their entire loan mature in 10 years (as is common with conventional financing).

In a conventional loan with a 10-year maturity, the borrower has to refinance the entire loan in 10 years – and in some instances, the interest rate will re-set in year 5.  With an SBA 504 loan, the deal structure works like this: typically, a commercial lending partner provides financing for 50% of the 504 loan and takes a first lien position; Florida First Capital/SBA provides 40% of the project financing and takes a second lien position; and the borrower provides a down payment of just 10% in most cases.

Under the 504 loan structure, only the commercial lending partner’s portion (50%) matures in 10 years, which is the underrated advantage of a 504 loan.  The borrower mitigates the interest rate risk on the SBA portion of the loan (40%), not needing to worry about refinancing the SBA portion down the road.

In this currently unparalleled low interest rate environment and with the uncertainty of what the future holds, this advantage is further emphasized.

SBA 504 loans can be used for the purchase of major fixed assets, such as owner-occupied commercial real estate, renovations, new construction, energy efficient “green” initiatives and/or fixed heavy duty machinery and equipment, as well as the refinance of commercial mortgage and other business debt with or without a cash-out option.

504 loans provide up to $5 million of aggregate SBA eligibility on standard 504 projects; up to $5.5 million per 504 energy efficient green project not exceed $16.5 million in the aggregate; and up to $5.5 million per eligible small manufacturing project with no limit on total SBA dollars available.  These are SBA 2nd mortgage loan portions only; there is no limit on overall project dollar size.

Credit: Alejandro Buitrago, Florida First Capital Vice President and Business Development Officer for the Miami-Dade area.  Follow Alejandro on LinkedIn.

For more information about SBA 504 loans in Alabama, Florida or South Georgia, contact a Florida First Capital Loan Officer or email us at  Phone: 850.681.3601 or toll-free at 800.504.LOAN.