To better understand the benefits of an SBA loan let's examine two examples in which the 504 either helped a business get launched or save the business owner working capital.

Restaurant: A young entrepreneur had been in the family's restaurant business for years. Like most entrepreneurs it was time to venture out and open his own restaurant. He purchased a building for $478,000 and began the renovations. As with many projects, the expansion costs more than the owner anticipated. After attempts to obtain a traditional bank loan were denied, and venture partners wanted to be absent owner's and demanded too much equity, the restaurant owner came to Royce Joseph Capital to see if we could assist.


The total loan was $2,672,000, $1,094,000 was obtained through an SBA 504 with a fixed rate of 4.62% for twenty years. The partner lender contributed $1,572,000 towards the loan with a 5 year adjustable 25 year loan at an interest rate of 6.0%. The blended interest rate for this loan was 5.31%, far better than a commercial loan in rate of interest and term.

Warehouse: A local contractor had been renting a warehouse and office facility and in today's commercial property price environment the company wanted to purchase a building. The company located a building and negotiated a price of $1,300,000.00, and needed another $175,000.00 worth of renovations.

The contractor's bank wanted 25% down payment ($325,000) with a term of 15 years and would not lend enough funds to cover the renovations. The down payment would have depleted the contractor's cash reserves.

Here is how a SBA 504 loan was a the best solution. The contractors' down payment was 10% of the project cost ($151,175.00). The 504 portion of the loan was $604,700 with a 20 year fixed rate of 4.62%; the partner lender's contribution to the loan was $755,875.00, a 5 year adjustable, 25 year loan with an interest rate of 6%. The effective blended rate to client was 5.31%. The contractor only needed to utilize 55% of the building's square footage, allowing the balance of the building to be rented to other companies. The terms of the loan, the lower down payment made this the best solution.

(Please note: The interest rates described above are actual interest rates at the time this example was written and the projects were funded. As with all credit markets, interest rates are subject to change.)