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SMALL BUSINESS FAQS
1. What is SBA?
2. What is an SBA 504 Loan?
3. Am I eligible for the 504 SBA Loan Program?
4. How much can I borrow under the SBA 504 Loan Program?
5. How long do I need to be in business to get this loan?
6. What is a CDC?
7. What can I use the proceeds for?
8. Can my real estate holding company own the building?
9. Does my business have to occupy all of the building?
10. How is an SBA 504 project financed?
11. What is a special use property?
12. Must the applicant’s equity contribution be in cash?
13. Can the Borrower’s contribution be borrowed?
14. Are all franchises eligible for SBA financing?
15. Does the small business need to create jobs?


Q: 1. What is SBA?
A: The U.S. Small Business Administration (SBA) was created in 1953 as an independent agency of the federal government to aid, counsel, assist and protect the interests of small business concerns, to preserve free competitive enterprise and to maintain and strengthen the overall economy of our nation. Small businesses are critical to America’s economic recovery and strength, to building America's future, and to helping the United States compete in today's global marketplace. Although SBA has grown and evolved in the years since it was established in 1953, the bottom line mission remains the same. The SBA helps Americans start, build and grow businesses. Through an extensive network of field offices and partnerships with public and private organizations, SBA delivers its services to people throughout the United States, Puerto Rico, the U. S. Virgin Islands and Guam.
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Q: 2. What is an SBA 504 Loan?
A: The 504 loan program is an economic development program designed to provide fixed rate, long-term financing for fixed assets while stimulating employment through job creation and retention.
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Q: 3. Am I eligible for the 504 SBA Loan Program?
A: To be eligible, the business must be operated for profit and fall within the size standards set by the SBA. Under the 504 Program, the business qualifies as small if it does not have a tangible net worth in excess of $15 million and does not have an average net income in excess of $5 million after taxes for the preceding two years. Loans cannot be made to businesses engaged in speculation or investment in rental real estate. Some other businesses are ineligible. Please contact one of our team members to determine the entire eligibility of your business.
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Q: 4. How much can I borrow under the SBA 504 Loan Program?
A: NWBDA participates with finance projects between $250,000 and $5,000,000 (up to $10,000,000 for manufacturing businesses or meeting energy goals). NWBDA typically finances 40% of the project, a participating Lender finances 50% of the project, and the borrower provides 10% of the project.
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Q: 5. How long do I need to be in business to get this loan?
A: Loans can be made to small business, whether you are a start-up or an existing business. A start-up business (less than 2 years) requires an additional down payment of 5% of the project costs. Startup businesses will require a business plan and reasonable projected financial statements with supporting assumptions. Please visit the "Other Links" for resources to assist you with these projections.
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Q: 6. What is a CDC?
A: A Certified Development Company (CDC) is a nonprofit corporation set up to contribute to the economic development of its community or region. CDCs work with the SBA and private-sector lenders to provide the financing to small businesses. NWBDA is certified as a CDC in Washington, Northern Idaho and Northern Oregon.
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Q: 7. What can I use the proceeds for?
A: Proceeds from 504 loans must be used for fixed asset projects such as: purchasing land and improvements, including existing buildings, grading, street improvements, utilities, parking lots and landscaping; construction of new facilities, or modernizing, renovating or converting existing facilities; or purchasing long-term machinery and equipment.The 504 Program cannot be used for working capital or inventory, consolidating or repaying debt, or refinancing.
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Q: 8. Can my real estate holding company own the building?
A: Yes, a separate entity may own the real estate as long as there is some form of common ownership between the real estate holding company and the operating business. In addition, there must be a signed lease between the entities for at least the term of the loan. The monthly lease payments cannot exceed the loan repayment amounts, taxes, insurance, and maintenance.
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Q: 9. Does my business have to occupy all of the building?
A: No, if you are purchasing an existing building, the operating business must occupy at least 51% of the inside square footage of the property. For new construction, the operating business must occupy 60% immediately and 80% within 10 years. 20% of the building may be permanently leased out.
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Q: 10. How is an SBA 504 project financed?
A: An SBA 504 project has three main components: A third party lender who provides 50% or more of the financing, a Certified Development Company (CDC) who provides up to 40% of the financing, and the applicant (borrower) who provides at least 10% of the financing.

If the borrower is a start-up business (management has been in this business less than 2 years) or the property is a special use property then the applicant’s share of the project increases to 15% and the CDC’s decreases to 35%. If both of the above are true, start-up and special use, then the applicant’s share would increase to 20% and the CDC’s reduced to 30%.
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Q: 11. What is a special use property?
A: A special use property has been determined by SBA to have a higher risk due to the marketing time or fair market value if liquidation was to occur because of the special nature of the property. SBA has made a list of properties they consider to be limited or special purpose properties. Special Purpose Property List
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Q: 12. Must the applicant’s equity contribution be in cash?
A: The borrower’s equity contribution may be in the form of cash or equity in an asset previously acquired such as land, or land and buildings if the applicant is adding another building to the same property.
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Q: 13. Can the Borrower’s contribution be borrowed?
A: Although it is preferred that the borrower’s contribution be in cash or equity, a portion of the contribution can be borrowed as long as: 1) the lien position is subordinate to the 504 loan, 2) the borrower cannot pay the loan for the equity contribution at a faster rate than the 504 loan, and 3) the borrower must demonstrate repayment ability for the borrowed funds.
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Q: 14. Are all franchises eligible for SBA financing?
A: SBA requires review of a franchise agreement, license agreement, membership agreement, co-op agreement, dealer agreement, jobber, or similar agreement to determine if an affiliation exists that would disqualify the applicant from the program. A review of acceptable franchises is listed on the Franchise Registry at www.franchiseregistry.com.
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Q: 15. Does the small business need to create jobs?
A: The SBA 504 loan program has economic development objectives to create or retain at least 1 job for every $65,000 of project debenture. This requirement can be waived under certain community or public policy goals. Please contact one or our knowledgeable business development officers for a list of these policy goals.
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Effective Rates
November 2017

20 Year Rate: 4.51%
10 Year Rate: 4.38%

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