Building Generational Wealth – SBA 504 and Commercial Real Estate

Building generational wealth (the accumulation of assets, including financial resources, property, and investments, that are passed down from one generation to the next) is crucial for any community, but it is especially important for the black community. The legacy of slavery, Jim Crow laws, and institutionalized racism has left many black families with fewer opportunities to build wealth and pass it down to future generations. Two key ways to build generational wealth is through real estate ownership and entrepreneurship. 

This is were the Small Business Administration (SBA) 504 Loan program can be be incredibly useful for black-owned businesses.

The SBA 504 loan program is a type of commercial real estate loan that allows small businesses to purchase or renovate owner-occupied commercial real estate or acquire long-term equipment. The program is administered by Certified Development Companies (CDCs), which are non-profit organizations that partner with banks and other lenders to provide funding to small businesses.

One such company in Washington State is Evergreen Business Capital whose Sr. VP and Sales Manger, Lori Milton acted as key presenter for the Black Eco Chamber’s March Workshop, SBA & The 504 Loan Option.

As Milton explained in detail, one of the primary benefits of the SBA 504 loan program is its low fixed interest rate. The interest rate on an SBA 504 loan is typically below market rate, which can significantly reduce the cost of borrowing for small businesses. The program also allows for long repayment terms of up to 25 years, which helps small businesses manage their cash flow and plan for the future.

To be eligible for an SBA 504 loan, a business must meet certain criteria. First, the business must be a for-profit enterprise with a tangible net worth of less than $15 million and an average net income of less than $5 million over the previous two years. The business must also have a specific use for the funds, such as purchasing or renovating owner-occupied commercial real estate or acquiring long-term equipment.

In addition to meeting these criteria, a small business must also have a strong credit history and demonstrate the ability to repay the loan. While the SBA 504 loan program is designed to provide financing to small businesses that might not otherwise qualify for traditional commercial loans and is open to start up companies, the program is still subject to creditworthiness standards.

Once a small business has been approved for an SBA 504 loan, the funds are typically disbursed in two parts. The first part of the loan is provided by a commercial lender, such as a bank, and covers up to 50% of the total project cost. The second part of the loan is provided by a CDC and is guaranteed by the SBA. This second loan covers up to 40% of the total project cost, and the small business must provide a down payment of at least 10%.

By providing affordable, long-term financing to small businesses, the SBA 504 loan program helps stimulate economic growth and job creation. According to the SBA, the program has supported the creation or retention of more than 2.1 million jobs since its inception in 1986. In addition, the program has provided more than $80 billion in funding to small businesses.

Overall, the SBA 504 loan program is an important tool for small businesses looking to start or expand their operations. The program offers affordable, long-term financing with low fixed interest rates and flexible repayment terms. While the eligibility requirements can be stringent, the program provides a valuable opportunity for small businesses to access the funding they need to grow and thrive. If the 504 loan is something you feel can benefit your business, reach out to Lori Milton and the staff at Evergreen Business Capital at this link: https://www.evergreen504.com.