What Exactly Does an SBA 504 Loan Do for Your Business?

If your small business needs financing, the Small Business Administration can help you get the money that you need. Which SBA loan would be best for you depends on several factors, including how you plan to spend the money, what you can afford, and your business’s credit history, among others. For many small businesses, a 504 loan would be a great choice. Here are a few reasons why you might consider this type of loan.

1. It Allows You to Use Your Finances Flexibly

While the money from a 504 loan can only be used for fixed assets such as land or buildings and equipment, it can free up some money that you can use in other ways. You can also use this SBA loan to refinance your existing debts, as long as they are related to an expansion of your business that involves the items mentioned.

2. It Helps You Get the Equipment or Property You Need at a Lower Rate

Purchasing new property and equipment can be a big investment that costs quite a bit of money, but it is a necessary asset for the growth of your business. Depending on the SBA loan you receive, you can end up paying even more with interest and fees. With a 504 loan, you can expect to have a below-market interest rate so you will be paying less than if you had chosen another type of loan.

3. It Gives You Fixed and Predictable Payments

Along with interest rates being below market, with a 504 loan, they are also fixed. This means that for the duration of your loan, up to 25 years, your interest rates will not go up. This can not only save you money in the long run, but it also allows you to more easily plan out a long-term budget since you already know exactly what the payments for your loan will be. This can be especially helpful in avoiding rising rent rates. If you are renting a building that you know will be a permanent business location, using a loan to buy it can result in lower overall payments.

While the 504 loan has some limitations, it can be helpful to your small business if you are planning to make a large property investment. If you need financing, consider the features of this SBA loan compared to others to determine if it is the right fit for you and your business.

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