FAQ

• What are the main advantages of a 504 loan?
  504 loans allow a business to finance up to 90% of all costs associated with the purchase or construction of owner occupied commercial property and certain machinery and equipment (vs. 75%-80% with conventional bank financing). Additionally, 504 loans have a low fixed rate and are repaid over 20 years. See 504 Loan Advantages for more information.
• How is a 504 loan structured?
  A bank will provide 50% financing of the total project costs. REDCO finances 40% via the SBA 504 Loan Program. The borrower contributes a 10% down payment. Note: the down payment requirement is increased to 15% of the business is less than 2 years old. If the property is designated as a single purpose property (e.g. gas station, hotel, car wash), then the down payment requirement is increased to 15%. If the business is both less than 2 years old and property is single purpose, down payment is increased to 20%.
• Where can my down payment/injection come from?
  Your down payment requirements can come from business or personal cash, gifted money, or home equity. A portion of the down payment can be borrowed, but must meet strict repayment terms as required by the SBA and REDCO. We are happy to discuss this option with you.
• What is the maximum loan amount?
  While there is no maximum project size, the 504 loan is limited to the lesser of $5 million or 40% of the total project costs. The 1st trust bank can lend more than 50%, if necessary. The 504 loan limit increases to $5.5 million if the project is for a small manufacturing business or if the project meets certain energy efficient project requirements.
• Is there a bunch of paperwork involved?
  No. We collect the same financial package that your bank does, and with your permission will work directly with your bank to obtain what you may have already provided. There are a few other forms, but REDCO will complete those for you, then present to you for review and any necessary signature.
• I don’t currently have a banking relationship or bank lender. Can you help?
  Absolutely! We have relationships with nearly every bank in Virginia, and we’re happy to introduce you to a lender in your community.
• Is the approval process long and cumbersome?
  Not at all! REDCO works closely with you throughout the process, and completes most of the forms for your review. We work closely with your bank so that your bank and REDCO approval come at the same time. REDCO then submits your application to the SBA, which will review the package within 5-7 days, on average.
• What’s the difference between a 504 loan and an SBA 7(a) loan?
  The SBA guarantees both 504 loans and 7(a) loans. However, the 504 loan requires a low down payment and a fixed rate, with repayment terms over 20 years (real estate) or 10 years (machinery/equipment). While a 7(a) loan can also be used for the same purpose, they typically require a down payment greater than 10%, and the rates are usually higher and/or adjustable. Further, 7(a) loans usually cost more over the life of the loan. REDCO can provide a cost comparison specific to your project, if you wish.
• What kind of equipment and machinery can be financed with a 504 loan?
  Equipment and machinery must have a useful life of at least 10 years and be at a fixed location. Furniture, fixtures and equipment with a useful life of less than 10 years can be included as part of a real estate purchase/construction, as long as they are essential to the project and a minor part of the overall costs.
• Can other costs be included in a 504 loan?
  Yes. Soft costs and the majority of closing costs can be financed in a 504 loan, and are added as part of the “total project costs”. These include, but are not limited to, appraisal and environmental report fees, recording costs, title insurance costs, the cost of any required survey, architectural and engineering fees, and bank loan fee on any interim or construction loan.
• Are there prepayment penalties if I pay my loan early?
  Yes. There is a declining penalty for the first 10 years based on the loan amount and funding rate. We are happy to provide that sliding scale to you.