SBA 504 Loans: How to Qualify for a 504 Loan
What do commercial lenders look for?
At MCC, we understand that securing commercial real estate financing for your project can seem like a daunting process. We are ready to help walk you through the procedures and give the consultative advice that is necessary for you to become comfortable with the many nuances of commercial lending. MCC is committed to making the commercial lending process as comfortable and seamless as possible. We hope this overview of the underwriting process may serve as a first step in knowing what to expect with commercial lending.
Lenders examine five traditional core attributes of borrowers when making financing decisions. These are referred to as the 5 "C's":
- Collateral
- Cash Flow (capacity to repay)
- Credit Analysis
- Character
- Capital
Lenders place different levels of importance and analysis on each area of analysis to determine their interest in financing your project. Some lenders may allow strengths in one area to completely or partially offset deficiencies in other areas.
Under the following guidelines, over 98% of incorporated entities in Florida (as just an example) are qualified small businesses and eligible for our 504 loans.
Eligible Borrowers:
- For-profit, non-publicly traded businesses.
- Tangible business net worth (including affiliates) not to exceed $8.5 million.
- Average net income of the business not to exceed $3 million over the previous two years.
- Personal liquidity of each principal/guarantor not to exceed the total project costs of the proposed 504 loan.
- Ownership must be comprised of 51% U.S. citizens or resident aliens (Legal Permanent Residents).
Ineligible Borrowers:
- Non-profits (except sheltered workshops).
- Passive holders of real estate and/or personal property.
- Lending institutions (mortgage brokers and correspondent lenders are eligible).
- Life insurance companies (however, franchised agents are eligible).
- Businesses located in a foreign country or owned by aliens.
- Businesses selling products/services through a pyramid plan.
- Illegal businesses.
- Gambling concerns.
- Businesses which restrict patronage.
- Government owned entities (excluding Native American Tribes).
- Businesses engaged in promoting religion.
- Consumer and marketing cooperatives (producer cooperatives are eligible).
- Businesses engaged in loan packaging.
- Businesses owned by persons of poor character.
- Businesses providing prurient sexual material.
- Businesses that have previously defaulted on a Federal loan.
- Businesses engaged in political or lobbying activities.
- Speculative businesses.
If your business didn't make this exhaustive list, then it's probably okay.
Ineligible Use of Funds:
- Refinancing (unless debt has been in place for less than 9 months).
- Working capital.
- Inventory.
- Rolling stock.
- Business "good will" or "blue sky" (common in business acquisition financing).
