May 26, 2006: “Spotlight
on Our Economy” Monthly Column for The
Palladium-Times
By L. Michael Treadwell, CEcD, Executive Director of Operation
Oswego County
Start or Expand Your Small Business
with SBA 504 Loan
New or expanded businesses such as Oswego
Recycling, LLC in Oswego, The Club at Caughdenoy Creek in the town
of Hastings, Harbor Lights in Mexico, Old Man’s Place convenience
store in the town of Granby, Upstate Pain Medicine, PC in Fulton,
and Cannon’s Place Motel and Campground in Altmar have all
recently benefited from a Small Business Administration (SBA) 504
loan administered by Operation Oswego County (OOC), Oswego County’s
designated economic development agency.
The SBA 504 loan program is designed to promote
economic development growth and job creation in small businesses
and make the overall financing structure for a new business or expansion
project more attractive and affordable. The program offers accessible,
fixed rate, long term financing for land, buildings and equipment.
Businesses eligible for SBA 504 loans are
independently-owned, for-profit businesses that are ready to expand
and create jobs.
The following are some of the key points
to know about the SBA 504 loan program:
- for every $50,000 of the SBA 504 loan,
the project must create at least one new job;
- machinery and equipment financed must
have a useful life of at least 10 years;
- for construction of a new building, the
small business borrower must plan to occupy at least two-thirds
of the space;
- for purchase or remodeling of an existing
facility, the small business borrower must plan to occupy at least
51 percent of the space;
- the borrower must qualify as a small business.
According to the SBA, about 98 percent of all U.S. companies meet
the agency's definition of a small business;
- the minimum size of a SBA 504 loan is
$50,000, while the maximum is typically $1.3 million;
- the interest rate is fixed for the entire
10 or 20 year term of the loan; and
- recent changes now allow a SBA 504 to
be as high as $4 million for a manufacturing project and the job
requirement is $100,000 per job.
Businesses must have a net worth less than
$6 million and annual after-tax profit of less than $2 million.
A Certified Development Company (CDC) such as OOC, finances 30 to
40 percent of the project with an SBA 504 loan, and the small business
provides 10 to 20 percent equity. A normal SBA 504 loan is structured
where the bank finances 50 percent of the project at its normal
rates and terms. The SBA 504 loan is guaranteed 100 percent by the
U.S. Small Business Administration. As with any traditional loan,
the loans must be collateralized. With the SBA 504 program, the
bank takes the first lien position on all collateral. The CDC takes
a second behind the bank. This gives the bank a 50 percent loan
to value from the moment the loan closes and this position improves
with each loan payment from the small business borrower.
If you’d like more information about
the SBA 504 loan program or other economic development services
in Oswego County, call my office at 343-1545
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