Snohomish County Business Journal


YOUR COUNTY.	YOUR BUSINESS JOURNAL.

Published November 2000

504 loan aids companies
in growth mode

By Kimberly Hilden
Herald Business Journal Assistant Editor

To Mark Davis, the Small Business Administration’s 504 Loan Program is one of the world’s best-kept small-business secrets.

The 504 loan, which is a subordinate loan to a bank, “can minimize the borrower’s down payment,” said Davis, lending team leader at Seattle-based Evergreen Community Development Association, a Certified Development Company that works with the 504 program.

“We can help them (small businesses) get an overall lower interest rate usually, depending on market conditions, and also, by limiting their down payment to 10 percent ... preserve their working capital,” he said.

The program, which combines a loan from a traditional lender with a secondary loan from a nonprofit CDC, provides growing small businesses with long-term, fixed-rate financing for major fixed assets.

“This is a more narrowly defined program (than the more common SBA 7(a) Loan Guaranty Program), targeted for economic development, job creation and primarily used for ... acquisition or enhancement of fixed assets: real estate, acquisition of existing buildings, construction ... and expansion,” said Mark Costello, chief of the finance division at the SBA’s Seattle District Office.

Typically, the traditional lender finances 50 percent of the project, with the CDC financing 40 percent through a 100 percent SBA-guaranteed debenture and the borrower taking care of 10 percent, Costello said.

The maximum SBA debenture generally is $750,000 but can go up to $1 million in some cases, according to SBA literature.

Although the 504 program is tailored to small businesses looking to expand, many of those small businesses don’t know it’s out there, Davis said. The traditional lender tends to be the CDC’s initial contact.

“Usually, the small business will go to a bank,” Davis said. “The borrower wants to make a lower down payment because of limited working capital. The bank will call us and ask us to get involved.”

That’s what happened in Keith Navone’s case.

Owner of Truck Trails Northwest, Navone was looking to expand his fleet maintenance shop located off Mukilteo Speedway in Lynnwood.

When he went to the bank with his tax returns, financial papers and personal resume, Navone knew about the SBA but had never really heard about the 504 loan program, he said.

First Union Bank looked to see what it could do with the SBA, and the 504 loan fit the bill, said Navone, who was able to show increasing profits during nearly four years in business and a growing customer base to support his planned $2 million expansion project.

With an additional 20,000-square-foot facility and 60-foot-long paint booth, Truck Trails Northwest will be able to operate more efficiently, said Navone, who also is considering adding service trucks and towing to his operation, not to mention increasing his 10-person staff.

“I can create four more jobs right now, if I had the room,” said Navone, who expects his financing to be completed by early this month.

Job creation is a primary objective for 504 loan eligibility, Davis said.

“For every $35,000 loaned, we’re looking for one job to be created,” he said.

Another thing Evergreen looks for are small businesses that meet public policy goals, such as minority-owned businesses, businesses expanding in rural areas and veteran-owned businesses, Davis said. Other public policy goals include increasing productivity and competitiveness, usually through modernization, and having more than 10 percent of sales coming from exports.

Small businesses that meet such criteria are automatically eligible, Davis said, as are manufacturers.

Although the 504 program is designed for established companies — at least 2 years old — Evergreen can work with start-ups, Davis said, but a larger down payment is required by the borrower.

Related: SBA 7(a) program opens doors

Related: Financing resources

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