When franchisees begin to explore options available to them, they often assume they will be leasing their building. However, franchisees can finance and build their own facilities using long-term loans available through the U.S. Small Business Administration’s (SBA) 504 Loan Program.
In spite of the significant advantages of SBA 504 loans, they are still not well known outside of the banking community. These special loans provide long-term (10 or 20 year) financing to small businesses for the purchase, construction and renovation of real estate. They can also be used to fund large equipment purchases. 504 loans are arranged by Certified Development Companies (CDCs) then funded by the sale of government guaranteed bonds on Wall Street.
Loans are structured by CDCs partnering with traditional commercial lenders – primarily banks – to provide financing, however, borrowers work directly with CDCs to apply, close, fund, and service their loans. The typical 504 loan covers 40% of the project financing, with a 10% down payment from the borrower and the remaining 50% from the commercial lender.
