SBA rules · SOP 50 10 8.1

Can a new business get an SBA 504 loan?

Yes, a new business can qualify for an SBA 504 loan, but it requires an increased borrower contribution of at least 15%, or at least 20% if the project also involves a limited or special purpose property.

Quoted from SBA SOP 50 10 8.1Every quote checked word for word

In detail

Definition of a new business: A business is classified as new if it has been in operation for 2 years or less at the time of loan approval, or if a change of ownership introduces new, unproven management and increased debt unrelated to business operations.
Standard new business contribution: A new business must contribute at least 15% of the project costs, while the 504 debenture finances up to 35% and a third-party lender provides at least 50%.
Limited or special purpose property: If the project involves both a new business and a limited or special purpose property, the borrower contribution increases to at least 20%, which reduces debenture financing to a maximum of 30%.
Allowable contribution sources: Contributions may come from cash, land or buildings that are part of the project, or borrowed funds; borrowed equity must be subordinate to the 504 debenture and cannot be repaid faster than the 504 loan if secured by project collateral.
Program-specific exclusions: A new business cannot utilize 504 debt refinancing without expansion, which mandates at least 2 full years of operation, and cannot qualify under the energy public policy goal for reducing energy consumption by at least 10%.

The source

What the SOP says

“New businesses must contribute at least 15%. The Debenture will finance no more than 35% of the Project and at least 50% of the Project financing will be from banks or other financial institutions, state or local government, or foundations or other non-profit institutions.

SOP 50 10 8.1, Chapter 1: Eligibility through Submission of Application > Borrower’s Contribution (lines 3443-3446)✓ Verified

“If a Project will finance both a New Business and a Limited or Special Purpose Property, the Applicant must contribute at least 20% of the Project cost. The Debenture will finance no more than 30% of the Project and at least 50% of the Project financing will be from state or local government, banks or other financial institutions, foundations or other non-profit institutions.

SOP 50 10 8.1, Chapter 1: Eligibility through Submission of Application > Businesses with a Limited or Special Purpose Property: (lines 3447-3479)✓ Verified

“A business that has been in operation for 2 years or less at the time the loan is approved. A business that has been in operation for more than 2 years at the time the loan is approved may be considered a New Business if it is a change of ownership that will result in new, unproven ownership/management and increased debt unrelated to business operations.

SOP 50 10 8.1, Appendix 3: Definitions > New Business (lines 4364-4366)✓ Verified

“Any lien position on the Project Property must be subordinate to the 504 loan; Only in situations where the borrowed contribution is collateralized by the Project Property, Borrower may not pay the loan for its contribution at a faster rate than the 504 loan (13 CFR § 120.912) unless it is approved in writing by the D/FA or designee; and If the borrowed contribution is collateralized by assets other than the Project Property, the Borrower must demonstrate repayment of the loan for its contribution from the cash flow of the business or other sources.

SOP 50 10 8.1, Chapter 1: Eligibility through Submission of Application > If the Borrower’s contribution is borrowed: (lines 3482-3485)✓ Verified

“The Applicant must have been in operation for all of the 2-year period ending on the date that the application is submitted, as evidenced by the financial statements submitted at the time of application.

SOP 50 10 8.1, Chapter 1: Eligibility through Submission of Application > The CDC’s credit memorandum must: (lines 3232-3243)✓ Verified

“Projects for the reduction of existing energy consumption by at least 10%. This category may not be used for Projects involving new businesses.

SOP 50 10 8.1, Chapter 1: Eligibility through Submission of Application > Note (lines 3063-3064)✓ Verified

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