SBA 504 loan application process

The SBA 504 Loan Program helps small business owners secure affordable, long-term, fixed-rate financing to buy, build, or upgrade real estate and equipment needed for expansion.

While determining how to apply for an SBA loan might seem complicated at the beginning, it’s doesn’t have to be.  In this guide we break down how to apply for SBA loan step-by-step.

Step 1: Determine Eligibility

Before you spin your wheels applying for an SBA loan, you will want to make sure your project meets all the SBA requirements for eligibility. For example, only US Citizens are eligible for SBA financing. Projects must be for the benefit of a small business (i.e. not used for passive investment purposes).

Step 2: Find a lender/CDC

If you believe you are eligible for SBA financing your next step in how to apply for SBA loan can go through one of two routs. You need to find either a lender that offers 504 loans, or a CDC in your state that can connect you with such a lender.    Every SBA 504 project consists of two loans: A senior loan provided by a bank or direct lender and a junior loan provided by the SBA.  The CDC underwrites and services the junior loan on behalf of the SBA.   For a full breakdown on how and why SBA 504s are structured this way chec out our article “How SBA 504 Loans work.”

Finding the righ lender for your SBA 504 can be time consuming and stressful.   We’re here to help.  Connect with one of our loan guides and we’ll get you connected with a CDC and/or lender who can help.

Step 3: SBA Prequalifcation

When you apply for an SBA loan most lenders and CDCs will do some prequalification work before diving into formal underwriting.   The goal of this step is to give the borrower and the lender confidence that the loan will likely meet both the eligibility and underwriting criteria necessary to gain an SBA approval.   At this stage you will need to be prepared to provide the following:

• • • Prospective property address and either Purchase agreement or estimated purchase price if not under contract
    • YTD (Interim) Financials for the business
    • Three years of business tax returns
    • Three years of personal tax returns
    • Personal Financial Statement

Step 4: Loan Terms and formal engagement

After an initial prequalification most lenders will provide a term sheet or LOI outlining proposed terms for their loan.   This will include interest rates, term, amortization, prepayment penalties and fees amongst other items.   Term sheets/LOIs are generally non-binding to either party but communicate what the borrower can expect.   This is when you will receive specifics on what your monthly payments will look like.  If you want to estimate your payments before going all the way through the how to apply for SBA loan process you can do so now by using our SBA 504 loan calculator.

At this point most lenders will also require a deposit from borrowers before they move into formal underwriting and order third party reports such as appraisals and environmental reports

Step 5: Underwriting and Loan Submission to SBA

At this step in how to apply for  SBA loan the CDC will need the following items in order to underwrite the loan and submit it for SBA approval.

SBA 504 Complete Loan Application Checklist

 Additionally, at this step the lender or CDC will order an appraisal of the property as well as an environmental report (both of which are required for the SBA approval.

Step 6:  Loan Approval

The CDC will prepare a credit memo and complete underwriting package that they will submit to the SBA on behalf of the borrower.  In parallel to this the senior lender in the transaction will complete their internal underwriting and approval process.

The SBA reviews the loan and then provides the CDC with an authorization to move forward with closing the loan.  The SBA review timeline to review the CDC submission can vary from a couple of days to a couple of weeks based on how busy things are at the SBA.

Step 7:  Loan Closing

In this step of how to apply for sba loan you are almost to the finish line.   The CDC and Senior lender will engage closing attorneys to prepare the closing documents, settlement statement and title policies.

Before closing you will need to be ready to provide the following to the closing attorneys:

• • • Proof of Insurance (see SBA Loan Requirements)
    • A lease between the Operating company and the real estate holding company if a holding company was created.
    • Organization documents and operating agreements if not previously provided
    • Zoning reliance letter
    • Voided Check

Once the title policy is in place and all the documentation required from the borrower is received the closing date will be scheduled for you to sign loan documents.

Step 8:  Debenture Funding of permanent SBA loan

In an SBA 504 transaction the junior loan provided by the SBA does not fund immediately at the closing.   This is because the SBA funds these loans through the process of selling a debenture (i.e. a pool of SBA loans sold to loan buyers) guaranteed by the US government.

At closing the SBA portion of the loan is generall funded on an Interim loan by the Senior lender.   The Interim loan is generally an interest only loan designed to bridge the 45-60 day period between the closing date and the SBA funding of the junior loan.

While this sounds a bit complicated, it is generally fairly seamless for the borrower as all the loan documents for both loans occur at the inital closing and the takout of the interim loan by the SBA loan after 45 days or so is coordinated directly between the CDC and the Senior lender.

If you want to better understand how SBA 504 loans work and why this benefits you as a borrower check out our guide.

Ready to Begin the SBA Loan Process?

Get started on your SBA 504 loan today and take the next step toward business growth.

Call Us at 1-855-504-LOAN

Contact APC Lending today to learn more about the SBA 504 Loan Program and take the first step toward building long-term success for your business.