Business Owners

How YOUR rate is calculated:

Why is the SBA 504 program so important to small businesses? The reason is it provides access to the capital markets at reasonable rates. When a large corporation expands, they go directly to the bond market. Small companies can't do that - unless they utilize the Small Business Administration's 504 program. The 504 program allows small business owners to access the bond market indirectly. The result is fixed rate financing for 10 or 20 years.

Here's how it works. Each month, across the United States, your 504 project is grouped with all the other 504 projects funded that month, which is collectively termed a "debenture".

That debenture is sold in the bond market directly to investors - such as large insurance companies and institutional investors. Due to your participation in the 504 program, the Small Business Administration guarantees the re-payment of your loan. Therefore, the market treats your loan like it is a U.S. Government security. As a rule of thumb, the debenture is correlated with a 10-year (or 5-year, depending on the asset financed) Treasury Note with some adjustments. Below is an example of how your loan's final interest rate will be priced.

Debenture Pricing Model 

10 year treasury 4.310%
+ Spread to investor 0.730%
 = Debenture Rate 5.040%
+ SBA subsidy cost 0.514%
+ CSA fee 0.100%
+ CDC Servicing fee 1.000%
 = Total 6.654%

As you can see, there are certain servicing fees associated with your loan rate to help us service your loan and meet the demands of the investors that bought the debenture.

Note that every month the rate will change and is set based upon two varying factors:

  1.  Demand for bonds that day
  2.  Spread to Investor - a premium that is also set by the market.

However, once your loan is funded through the debenture, your rate will be "locked-in" for the complete term of your loan.

Download Provident Application Forms Here

Loan Amounts

Maximum Loan Amount

  • An eligible entity may borrow up to 40% of the project or a total SBA guaranteed portion of $5.0 million or $65K per job maintained or created.
  • For a manufacturing loan, the maximum SBA guaranteed funds total $5.5 million or $100K per job maintained or created.
  • If applicant (or affiliates) has existing SBA loans, the total guaranteed portion must not exceed the maximums on all loans.

Public Policy Goals; aka/National Objectives

  • Revitalize a Business District of a community with a written and defined Revitalization or Redevelopment Plan.
  • Expand Exports (10% or more of annual gross revenues from exporting).
  • Expanding Minority Enterprises Development (51% ownership; 8a contractor definition).
  • RURAL Development (communities under 50,000 or with district approval).
  • Increase Productivity and Competitiveness (retooling, robotics, plant modernization, competition with imports).
  • Modernizing or upgrading facilities to meet health, safety, and environmental requirements.
  • Assisting communities affected by Federal Budget Reductions including Base Closures or loss of Federal Contracts.
  • Expanding business ownership management opportunities for veterans and women.

504 Size Standards

  • Tangible Net Worth of less than $15 million and Net Profit after tax (2 year average) of less than $5.0 million.
  • Size Standards increase by 25% in Labor Surplus Areas


Basic Eligibility for 504 Financing

  • Be an operating business (except for loans to Eligible Passive Concerns)
  • Must be organized for profit
  • Located within the United States
  • Be "small" under program size standards
  • Demonstrate the need for the desired financing: Credit not available elsewhere
  • Personal Liquid Resources Test
  • Meet an economic development objective of the program

Ineligible Types of Businesses

  • Non-profit institutions
  • Finance Businesses (Banks, Finance companies, Insurance Companies, etc.)
  • Real Estate Development and other Speculative Business
  • Business located in a Foreign Country [Legal Permanent Resident]
  • Pyramid sales distribution
  • Businesses deriving more than 1/3 of Gross Annual Revenues from legal gambling
  • Businesses that limit membership for reasons other than capacity
  • Government owned Entities (except tribal)
  • Businesses Principally engaged in Teaching, Instructing, Counseling, or Indoctrinating Religion Benefits
  • Consumer Marketing Co-ops (Producers Co-ops are ok)
  • Businesses earning more than 1/3 of income from packaging of SBA loans
  • Businesses in which the Lender or CDC or any of its associates owns an equity interest
  • Businesses primarily involved in political or lobbying activities
  • Businesses which present live performances of a Prurient Sexual Nature or derive more than de minimis gross revenues from the sell of products or services of a prurient sexual nature.
  • Unless, waived by the SBA, Businesses that have previously defaulted on a Federal Loan or Federally-assisted financing
  • Businesses where an associate is incarcerated, on a probation or parole, or has been indited for a felony or crime or mortal turpitude
  • Businesses engaged in any illegal activity

Eligible Use of Proceeds

  • Acquisition of Land
  • Land Improvements
  • Purchase of one or more existing buildings - OC must occupy 51%
  • 504 projects funds cannot make tenant improvements
  • Remodel, convert, expand, or renovate existing building(s)
  • Construction of new buildings - OC needs to occupy at least 60% with plans to occupy 80% within 10 years. Can lease up to 20% indefinitely. Must plan to utilize the remaining 20% within 3 years.
  • Acquisition of Machinery & Equipment
  • Contingency Reserve, not exceed 10% of construction cost
  • Professional Fees
  • Repayment of Interim points, fees and interest
  • Community Improvements up to 5% of construction cost
  • Nine Month Rule: Cost incurred within 9 months of the date of application to SBA can be included in project cost - Waivers available for good cause - Land cost can always be included, after 2 years, equity determined by appraisal. Otherwise, cost is always the basis.
  • Refinance of existing debt (no more that 50% of expansion costs in total debt refinanced)

Ineligible Use of Proceeds

  • Working Capital
  • Debt Refinancing (except for eligible interim financing)
  • Counseling fees
  • Incorporation or other Organizational Costs
  • Commitment Fees; Finance Broker Fees; Origination Fees for Private Sector Financing
  • Franchise Fees
  • Equipment or Furnishings with less than a year useful life unless - they are an integral part of the project and/or they are a minor portion of the project
  • They are an integral part of the project and/or
  • They are a minor portion of the project
  • Automobiles, Trucks, Airplanes
  • Advertising

Download Provident Application Forms Here