About SBA 504 Loans

Utilizing the U.S. Small Business Administration’s Section 504 Program, Bay Colony Development Corp. provides growing businesses with long-term, fixed-rate financing for the purchase or refinance of major fixed assets, such as land, buildings, machinery and equipment. Operating as a Certified Development Company (CDC), Bay Colony is a nonprofit corporation established to contribute to the economic development of local communities in Massachusetts, New Hampshire, Vermont, Connecticut and Rhode Island. We work with the SBA and private-sector lenders (primarily banks) to provide financing to small businesses.

Typically, 504 project financing includes a loan secured with a senior lien from a Banker/Lender covering 50 percent of the project cost, a loan secured with a junior lien from Bay Colony (backed by a 100 percent SBA-guaranteed debenture) covering up to 40 percent of the cost, and a contribution of at least 10 percent equity from the small business being helped. The latter amount can be in the form of cash into the project or, if an expansion project, existing equity in the project real estate.

Typical Financing Structure on a $1,000,000 Project to Purchase Real Estate

  Loan Amount / Equity % of Project Collateral
Lender $500,000 50% First Mortgage
Bay Colony /SBA $400,000 40% Second Mortgage
Borrower $100,000 10%  

SBA 504 Loans at a Glance

Maximum Project Size None
Maximum 504 Debenture (our piece of the total financing package) $5 or $5.5 million, depending on whether your business meets an approved public policy goal or is classified as a small manufacturer (NAICS codes beginning with 31, 32 or 33)
Typical Financing Structure 50% Bank Financing, 40% 504 Financing, 10% Borrower’s Equity
Minimum Equity Requirements Generally, 10% is standard, 15% if you have not owned the business for two or more years (Start-up); 15% if the real estate is considered special use (ex. skating rink, hotel); 20% if the project is both a start-up and special use. Note: seller financing of all or part of the equity requirement may be allowed if certain conditions are met, when using seller financing for equity requirement, the appraisal must be submitted at the time of application. Call for details.
Loan Fees Approximately 2.15% of debenture amount, which can be rolled into the loan. Legal costs for the debenture are typically $2,500 to $3,500 depending on the loan size, and can also be rolled into the loan.
Bank Participation Fee One time 0.5% of Bank Loan
Occupancy Requirement Owner must occupy at least 51% of an existing building. For new construction, owner must agree to occupy 60% of the building with plans to occupy 80% within 10 years.
Personal Guarantees Required of all owners of 20% or more of the operating company or real estate entity.  Minority owners may be required to guaranty on a case-by-case basis.
Approval Limit The approval is good for 48-months.
Assumable Yes, prepayment penalty is waived, a small assumption fee is usually charged (e.g., 1.0% of loan balance). Note: the buyer is expected to be as strong financially as the seller. Alternatively, the buyer can apply for a new 504 loan.
Refinance Existing Debt and Borrower’s Cash Injection Yes, with some requirements. Call us to discuss this.
Type of Business Must be for profit (with a few exclusions)

SBA 504 Debt Refinancing Program

The 504 Debt Refinancing Program has been reauthorized as a permanent part of the 504 Program and the SBA started processing applications effective June 24, 2016. Bay Colony Development is ready to assist you in determining if your project is eligible under the 504 Refinance regulations and to help you structure your loan to meet your business needs. Call us today and speak with one of our business development officers.

Program Highlights —

  • The business operations must be at least 2 years old with no significant changes to ownership during that period.
  • The loan(s) to be refinanced must be commercial loans, be at least 6-months old, and current on all payments (no more than 30 days past due) during the past 6 months.
  • For projects that refinance only long-term fixed asset debt, the loan to value maximum is 90%, and substantially all (75% or more) of the original debt to be refinanced was for an eligible fixed asset under the 504 Loan program and must have been incurred for the benefit of the small business, and the remaining (25% or less) was incurred for the benefit of the small business seeking refinancing.
  • For projects that include cash out for eligible business expenses (contact us to discuss eligible business expenses) the maximum loan to value (LTV) is 85%, of which a maximum of 20% of the project can be for eligible business expenses.
  • Existing government backed loans (SBA 504, 7A, USDA loans) are qualified debts to be refinanced.
  • Property Occupancy must be 51% at the time of application and meet all other SBA 504 eligibility requirements.
  • Approval can be made subject to appraisal. An appraisal dated within 12-months is required.
  • Loans approved under the 504 Debt Refinancing Program must close within a 9-month period.

Learn More

Maximum Debenture

The size of your project is not limited, but most projects, when considered in their entirety fall between $250,000 and $12,500,000. The maximum SBA debenture varies between $5,000,000 and $5,500,000 depending on your industry type and certain public policy goals. The maximum debenture for “Small Manufacturers” is $5.5 million. A Small Manufacturer is defined as a small business concern that has: Its primary business classified in sector 31, 32, or 33 of the North American Industrial Classification System (NAICS); and all of its production facilities located in the United States.  Projects under the Renewable Energy Public Policy goals are limited to multiple projects with a maximum aggregate gross debenture of $16,500,000, and no one project can exceed $5,500,000.

What Funds May Be Used For

Proceeds from 504 loans must be used for fixed asset projects such as: purchasing or refinancing land and improvements, including existing buildings, grading, street improvements, utilities, parking lots and landscaping; construction of new facilities, or modernizing, renovating or converting existing facilities; or purchasing machinery and equipment.

The 504 Program cannot generally be used for working capital or inventory, consolidating debt, or repaying debt.

Terms and Interest Rates

The fixed interest rate on a 504 loans is established at an increment above the current market rate (at the date the debenture is sold) for five-year and 10-year U.S. Treasury issues. Maturities of 10 years (Machinery and equipment) and 20 & 25 (real estate) years are available for 504 financing.


Generally, the project assets being financed are used as collateral. Personal guaranties of the principal owners are also required.

Eligible Businesses

To be eligible, the business must be operated for profit and fall within the size standards set by the SBA. Under the 504 Program, the business qualifies as small if it does not have a tangible net worth in excess of $15 million and does not have an average annual net income in excess of $5.0 million after taxes for each of the preceding two years. Loans cannot be made to businesses engaged in speculation or investment. You can learn more by reviewing our eligibility guidelines.

Veteran Loan Advantage Program

Bay Colony Development Corp. is proud to assist active duty military and veterans in their business expansion plans.  Under the Vet Loan Advantage Program, Bay Colony will pay either half of the Lender Participation Fee or the CDC Closing Fee, whichever is less.

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